Online review sites like Yelp, Trip Advisor and Angie’s List can have a major impact on the sales of certain businesses. New research published by the 2016 Americas Conference on Information Systems, says that managers should be strategic about responding to negative reviews. The study, “Management Response to Online WOM: Helpful or Detrimental?” is authored by Assistant Professors Young Jin Lee, Karen Xie and Ali Besharat from the University of Denver’s Daniels College of Business.
The researchers used data from TripAdvisor that included 3,763 managerial responses, 28,443 consumer reviews for 730 hotels of a regional market in southern U.S. from January 2005 to June 2011. They matched the dataset with quarterly financial performance records, including revenue, revenue per available room, room rate and occupancy, provided by local revenue comptroller offices.
“On one hand, when a business has only few reviews that are very negative, responding to those reviews may hurt the hotel’s financial performance,” the study says. “This may signal managers’ reluctance or incapability to address the real areas of concerns and may imply they are unable to fix substantial problems to avert the submission of negative reviews.”
Interestingly, the professors found that managerial responses to online reviews may hurt the revenue when there are a lot of positive reviews. If the hotel already overwhelmingly supported by a large number of customers for its service excellence, managers may not want to engage with the crowd to create unnecessary information overload and interference through managerial responses.
Oddly the reverse is true as well. If there are only a few positive reviews, managerial response helps revenue generation. And, if there are a high volume of negative responses, managerial response helps revenue generation as well.
“Overall, we advocate that managerial intervention should be strategic – whether and how to respond depends on the different levels of online review metrics,” the researchers say.