The recipe to happy customers is good value and a good location. Right? Earlier this month I explored the question of what factors lead to a good customer experience. I developed a list of 100 brand name hotels in the Philadelphia area and using our RightBid Feedback Collector software collected 113,333 customer votes from leading travel sites like TripAdvisor, Priceline, and Hotels.com. The data set included not only summary ratings for each location on a scale of zero to five, but other summary data such as the advertised lowest booking price, and sub-ratings for location, value, staff, and cleanliness denoted on a scale of zero to one hundred. We then applied multiple linear regression to estimate which factors had the largest effect on the overall customer rating.
The median nightly price for the 100 hotel sample was $119 with half of all observations between $93 and $139. The median overall rating was 4.02 with half of all observations between 3.74 and 4.21. The location rating had a median of 83.1 with half of all observations between 80 and 87.5. The ratings for value, staff, and cleanliness had similar characteristics although it should be noted that the median value rating was only 78 and the cleanliness rating had a somewhat higher standard deviation than the other three ratings.
In terms of brands represented, 13 hotels were Courtyard by Marriott, 12 were Extended Stay, 8 were Hilton brand hotels, 7 were Hampton Inns, and 6 were Holiday Inns. Of the major brands examined Courtyard, Residence Inn, and Hyatt had average ratings that were substantially higher than the overall sample whereas Extended Stay and Days Inn had average ratings well below the median of the overall sample.
The first question we looked at was does a higher price lead to a better customer experience. We observed the following relationship:
(The numbers in parentheses are T-Statistics which represent the likelihood that the coefficient is not zero. A value over 2 means that the parameter is statistically significant). As shown above, there is a strong relationship between price and overall rating. This is likely because higher priced hotels consistently over a quality experience whereas discount brands are more hit-or-miss. (This is not a cure all, if Days Inn set its prices in line with say Hyatt it will lose customers and disappoint big spending customers). A related question here is do customers perceive lower price hotels as being a better value? When we regressed lowest price on value rating we found a weak positive correlation, which is to say that customers perceive higher cost hotels as being a better value.
The second question we sought to answer is which factor contributes most towards the overall rating. To do this we regressed five factors (cleanliness rating, staff rating, location rating, value rating, and lowest price) on average rating:
(The corresponding T-Stats are 6.78, 2.09, 2.01, 2.07, 1.03, and -2.93 respectively)
As you can see above the cleanliness rating is responsible for the greatest portion of the variation in customer rating—roughly three times more impactful than a comparable change in the staff rating, over four times the magnitude of the coefficients for location and value. These other three ratings each had a weak effect on the overall rating. In this model, moving from the 25th percentile to the 75th percentile in value (71.8 to 82) would likely lead to an increase in the overall rating of 0.068. Compare this to a similar shift in the cleanliness rating (from 77.8 to 88.7) of 0.327 and you can see that even a slight change in cleanliness contributes more to the customer experience than changes in perceived location or value. Perhaps most surprisingly is that a hotel's price has no significant effect on the customer rating (which is the opposite of what we found in the first regression). Putting both of these findings together suggests that higher price hotels also have higher cleanliness and staff ratings than their low price competitors. Perhaps customers give high-price hotels high scores for value because the cleanliness and staff exceeded their expectations when booking. When hotel managers think about improving the customer experience, they should consider what the customer thinks about coming away from their stay (opinions about cleanliness and staff) as opposed to focusing solely on the factors that affect where they book (location and price).