When a negative review about your business pops up online, you might be quick to fire off a response to either apologize or defend yourself. However, new research from the University of Denver Daniels College of Business shows that businesses are better off being strategic about when to respond.
The research revealed that responding to online reviews can affect an organization's financial performance, depending on the number of reviews and how positive or negative they are.
"We advocate that managerial intervention should be strategic — whether and how to respond depends on the different levels of online review metrics," the study's authors wrote.
For the study, researchers examined data regarding hotels in a regional market in the southern portion of the United States. Specifically, the study's authors looked at more than 28,000 reviews on the online site TripAdvisor and the 3,763 responses from the hotels. The researchers then matched that information with quarterly financial performance records, including revenue, revenue per available room, room rate and occupancy. Local revenue comptroller offices provided the data. [See Related Story: Negative, But Polite, Online Reviews Aren't So Bad for Business]
The research revealed that if a hotel had a very few negative reviews, the company's financial performance dropped when company leaders responded to those posts.
"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," the study's authors wrote.
The research also found that responding to online comments hurt financial performance when there were a lot of positive reviews. The study's authors said that responding to reviews in this situation can create unnecessary information overload.
"If subsequent consumers have already seen a very strong and clear signal about the quality of products and services from a large group … external disturbance from the completely different source (managers from the firm) would make consumers react to it negatively," the study's authors wrote.
For example, consumers may raise questions in their minds about the soundness of the business, which may lead them to become suspicious about the underlying motives of the response.
Conversely, the research found that if there are only a few positive reviews, responding helps increase revenue.
"Such actions can augment signaling of very positive ratings to potential consumers to accelerate the formation of brand relationship and then deepen customers' trust," the researchers wrote.
In addition, responding to comments when there is an abundance of negative reviews can also improve financial performance, the study found.
"In the backdrop of firms shifting their social media emphasis from passive listening to active intervening, our findings provide important implications for practicing managers," the study's authors wrote. "Using our findings, managers can effectively utilize the efforts and resources required to manage online [reviews] and truly benefit from the wisdom of online crowds."
While the study looked at hotels specifically, the researchers said they believe the results will hold true for a variety of other business types, especially other service businesses.
"Our hypotheses are grounded on service recovery/customer-engagement theories in marketing, in which businesses make their efforts to interact with customer feedback in order to recover their damaged reputations (service failures) or boost customer loyalty of excellent service," Young Jin Lee, one of the study's authors and an assistant professor at the University of Denver, told Business News Daily.
The study, which was recently presented at the 2016 Americas Conference on Information Systems, was co-authored by University of Denver assistant professors Karen Xie and Ali Besharat.