Online customer reviews and the link between customer experience and revenue
Editor’s Note: Michael Wolfe is brilliant, plain and simple. He has been working on the models to show the correction between social media and revenue for years and it appears that he has “cracked the code”. He will be presenting more on these important findings at the MRMW conference next week as well as participating in the “Social Media benchmarking” panel discussion along with P&G, Ford, Coke, Decooda, Netbase, Conversition, and Anderson Analytics. Here is a sneak peek.
By Michael Wolfe, BBDO
This is my second article on deriving metrics from social media and developing an analytical link with brand revenues. This analysis, however, has a little different spin. A number of online social sites are focused on being diaries of the customer experience. Sites like hotels.com, Expedia and Trip Advisor are diaries covering the guest experience with hotels. Other sites like Yelp.com serve a similar function for restaurants.
Publication of this analysis is with grateful appreciation to the Hyatt Hotels Corporation, and Chris Brogan, VP Strategy & Analysis. This was previously published through a presentation at the conference EMetrics in Chicago, 6/26/12. With Hyatt Hotels, we were able to apply our proprietary approach for “scoring” textual conversations to hotel review sites such as hotels.com, Expedia and Trip Advisor. After scraping reviews for their individual hotels across the US, we applied our scoring algorithm to the textual comments. The steps we use to derive our Service Engagement Index (SEI) shown on Figure 1.
The SEI metric we derived was plotted against hotel bookings over time. The correlation or fit to booking demand was very high, as shown on Figure 2.
Once the SEI metric was developed and validated, our next step is the all-important task of putting the SEI into a marketing mix model, along with media and other marketing drivers, in order to show the predictive relationship of SEI on booking demand, as well as the inter-relationship between marketing and customer service engagement. The results, shown in Figure 3, clearly show a significant link between service and demand for hotel rooms. In addition, we also discover a significant “interaction” or “synergy” between advertising and SEI. These synergies are significant because they indicate that integrated and coordinated efforts to increase customer service, when accompanied by increases in advertising & marketing, will generate a greater impact than when activating these programs separately and independently.
Online hotel reviews are perceived to have a significant impact on booking demand for hotel properties. That is because these reviews are public and are there for all to see. According to a research study commissioned by Trip Advisor in 20111:
- 81% of travelers find online user reviews important when determining which hotel to stay at during a trip
- Nearly half (49%) of travelers surveyed won’t book a hotel property unless it has a review
For Hyatt, not only do reviews drive a significant portion of total booking revenues, but these reviews interact and expand the total impact of media and marketing. We call these effects “marketing synergies”.
While we have shown in other contexts that social media “word of mouth” has an impact on performance for various brands, the Hyatt Hotel case represents a special case that illustrates for a service business like hotels, the perceived quality of that service is a critical driver of its business. Most importantly, hotels do not have to view customer service as a factor outside their influence. Marketing and advertising clearly do have an influence on this service and both go hand-in-hand in forming a key and critical duo for driving growth and demand.
Online review sites represent a special social-media venue that hotels can’t afford to ignore. They are key channels of the “customer experience”.