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Advertising Strategy in the Presence of Reviews: An Empirical Analysis

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  • Brett Hollenbeck

    (Anderson School of Management, University of California Los Angeles, Los Angeles, California 90095)

  • Sridhar Moorthy

    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Davide Proserpio

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

We study the relationship between online reviews and advertising spending in the hotel industry. Combining a data set of TripAdvisor reviews with other data sets describing these hotels’ advertising expenditures, we show, first, that online ratings have a causal demand-side effect on ad spending. Second, this effect is negative: hotels with higher ratings spend less on advertising than hotels with lower ratings. This suggests that hotels treat TripAdvisor ratings and advertising spending as substitutes, not complements. Third, the relationship is stronger for independent hotels than for chains, and stronger in less differentiated markets than in more differentiated markets. The former suggests that a strong brand name continues to provide some immunity to reviews and the latter that the advertising response is stronger when ratings are more likely to be pivotal. Finally, we show that the relationship between online ratings and advertising has strengthened over time, just as TripAdvisor has become more popular, implying that firms respond to online reviews if and only if consumers respond to them.

Suggested Citation

  • Brett Hollenbeck & Sridhar Moorthy & Davide Proserpio, 2019. "Advertising Strategy in the Presence of Reviews: An Empirical Analysis," Marketing Science, INFORMS, vol. 38(5), pages 793-811, September.
    • Handle: RePEc:inm:ormksc:v:38:y:2019:i:5:p:793-811
    DOI: 10.1287/mksc.2019.1180
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    Cited by:

    1. Yuichiro Kamada & Aniko Öry, 2020. "Contracting with Word-of-Mouth Management," Management Science, INFORMS, vol. 66(11), pages 5094-5107, November.
    2. Dante Donati, 2022. "The End of Tourist Traps: A Natural Experiment on the Impact of Tripadvisor on Quality Upgrading," CESifo Working Paper Series 9834, CESifo.
    3. Xiang Hui & Meng Liu, 2022. "Quality Certificates Alleviate Consumer Aversion to Sponsored Search Advertising," CESifo Working Paper Series 9886, CESifo.
    4. He, Sherry & Hollenbeck, Brett & Proserpio, Davide, 2021. "The Market for Fake Reviews," MPRA Paper 105507, University Library of Munich, Germany.
    5. Yasui, Yuta, 2021. "Controlling Fake Reviews," MPRA Paper 108177, University Library of Munich, Germany.
    6. (Kay) Byun, Kyung-ah & Ma, Minghui & Kim, Kevin & Kang, Taeghyun, 2021. "Buying a New Product with Inconsistent Product Reviews from Multiple Sources: The Role of Information Diagnosticity and Advertising," Journal of Interactive Marketing, Elsevier, vol. 55(C), pages 81-103.
    7. Duan, Yongrui & Liu, Tonghui & Mao, Zhixin, 2022. "How online reviews and coupons affect sales and pricing: An empirical study based on e-commerce platform," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).
    8. Wu, Ruhai & Qiu, Chun, 2023. "When Karma strikes back: A model of seller manipulation of consumer reviews in an online marketplace," Journal of Business Research, Elsevier, vol. 155(PB).
    9. Yogesh V. Joshi & Andres Musalem, 2021. "When Consumers Learn, Money Burns: Signaling Quality via Advertising with Observational Learning and Word of Mouth," Marketing Science, INFORMS, vol. 40(1), pages 168-188, January.
    10. Georgios Zervas & Davide Proserpio & John W. Byers, 2021. "A first look at online reputation on Airbnb, where every stay is above average," Marketing Letters, Springer, vol. 32(1), pages 1-16, March.

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    More about this item

    Keywords

    advertising; online reviews; TripAdvisor; hotels;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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