Advertising Strategy in the Presence of Reviews: An Empirical Analysis

Brett Hollenbeck, Sridhar Moorthy () and Davide Proserpio ()
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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

Marketing Science, 2019, vol. 38, issue 5, 793-811

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.

Keywords: advertising; online reviews; TripAdvisor; hotels (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (21)

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https://doi.org/10.1287/mksc.2019.1180 (application/pdf)

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Working Paper: Advertising strategy in the presence of reviews: An empirical analysis (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:38:y:2019:i:5:p:793-811

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