The Financial Impact of Reputation Management

Today, social validation of a brand almost certainly translates to profit. Reading reviews before trying a new restaurant or booking a hotel is more than common practice — for most people, it’s also common sense.

According to Inc.com 79 percent of consumers today treat online reviews as if they were recommendations from trusted friends. According to Nielsen, 66 percent of consumers trust them more than they trust traditional advertising, editorial content, and email newsletters. Most important, Tnooz reports 53 percent of travelers say they do not trust hotels that do not have reviews online. Because of statistics like these, hotels simply cannot afford to underestimate the importance of online reviews.

It can be difficult to find a middle ground with online reviews. Too many negative reviews can financially ruin a business. A higher ratio of positive reviews, meanwhile, paves the way for financial success, though it in no way guarantees it — surveys from Econsultancy have actually shown that consumers are skeptical of brands that only have positive online reviews.

For this entry in our series on reputation management, we look at how negative and positive reviews affect the financial aspects of running a hospitality business.

How Negative Reviews Impact the Bottom Line

Here’s an interesting story: musician David Carroll penned a song called “United Breaks Guitars” when United Airlines refused to compensate him after they broke his guitar in transit. The song was viewed almost 14 million times on YouTube, and in the ensuing weeks, United’s stock dropped by 10 percent, losing the company a staggering $180 million.

When one person’s grievance with a brand goes viral, PR disasters can have a devastating effect on a business’s bottom line. But so can all the minor incidents that occur every single day — the ones that never come to the attention of the brand, but are nonetheless told to the families and friends of those who experience them. An American Express survey discovered that unhappy customers tell an average of 16 people about a negative experience. In comparison, happy customers only tell nine people about good experiences. This lost revenue from customers who churn adds up over time.

Potential guests are the key to growth, but brands that don’t carefully manage their reputations will be incapable of realizing that growth. Research from Search Engine Land has shown that 87 percent of consumers will not consider doing business with brands that have low ratings on review websites.

Another mistake brands make is assuming that just because they have gained a customer’s trust, then they have it forever. Loyal customers may be less sensitive to a faux-pas on the part of their favorite brand, but that doesn’t mean they’re completely oblivious to it. If they see the brand mistreating or neglecting customers online, they’re more likely to wonder if they’ll ever find themselves on the brand’s bad side — and if so, what will happen to them.

How Positive Reviews Impact the Bottom Line

Positive reviews lead to more traffic, which leads to more money coming in. Brands with better reviews are typically more visible on review websites. Highly-rated hotels, for example, win TripAdvisor awards and receive exposure in TripAdvisor’s marketing content. When more people click on a business’s link to read reviews, this translates into the potential for more bookings for a hotel or more visits for a restaurant. In general, people are drawn more to businesses that have received a stamp of approval from their peers. 

Positive reviews also impact revenue in that they give brands some flexibility in pricing. Because of steep competition within their industries, businesses are often wary of raising prices too much, lest they lose customers to the place next door. But positive reviews actually give businesses an opening to charge more for their products or services.

Hotels with higher than average ratings, for example, can charge a premium on rooms. Research from the Cornell School of Hotel Administration found that hotels can increase prices by 11.2 percent — without losing market share — for every additional star they receive on a review website.

Similarly, when it comes to restaurants, a study conducted by the Harvard Business School discovered that every one-star increase on Yelp resulted in a five to nine percent increase in revenues. This is proof that better ratings have a demonstrate impact on ROI.

As we’ve said before, many people trust online reviews more than traditional advertising. Businesses should take advantage of this fact. Traditional marketing campaigns cost thousands or even millions of dollars, depending on the desired reach, whereas online reviews are free. This doesn’t, of course, mean that brands should entirely scrap their marketing budgets; it just means they can scale it back a little and let online reviewers do more of the heavy lifting — provided, of course, the reviews are favorable.

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