The Influence of Online Reputation and Product Heterogeneity on Service Firm Financial Performance

Using two proprietary data sets, ReviewPro’s Global Review Index and Smith Travel Research’s performance database, we examine the influence of online review scores on service firm financial performance. We conceptualize online reviews as a measure of a service firm’s reputation and demonstrate that higher scores have a positive relationship to a hotel’s financial performance as measured by revenue per available room (RevPAR). We demonstrate that a 1% increase in a hotel’s online reputation score is related to a 0.99% increase in RevPAR. We also demonstrate that naturally occurring differences in the heterogeneity of different product classes moderates the relationship between review score and performance. The influence of online reviews monotonically decreases as the hotel class level increases (e.g., upscale hotels are less affected by reviews scores than midscale hotels). We also demonstrate that when controlling for occupancy, online consumer review ratings have a greater influence on a firm’s pricing power (average daily rate) for service/product categories with more depth, i.e., for products positioned within categories of diverse offerings. As a robustness check, we examine the influence of scores at the individual rather than aggregate level by using choice data from a major North American travel agency. Replicating our aggregate results, choice data affirm the positive impact of review scores on hotel selection as well as the moderating role of hotel type.