Impact of reputation on hospitality profitability: impact of service failure online exposure on revenue performance – evidence from the hotel industry in China

Abstract

Purpose Using a video revealing unhygienic practices in Chinese five-star hotels as the case study, this study aims to understand the impact of service failure online exposure on hotel revenue performance in terms of seriousness, magnitude and duration, as well as to identify the hotel-characteristics and hotel-responsiveness factors that influence revenue recovery. Design/methodology/approach This study uses the actual Revenue per Available Room data of ten hotels involved in the incident and five different market segments during 2016–2019. Event study method is used to investigate the effect of online exposure on hotel revenue performance. Findings This study confirms the significant negative effect of online exposure and that hotels take nearly nine months to fully recover. The results indicate that hotel size, hotel age and response strategy play an important role in reducing negative impacts. Moreover, this study reveals the dynamic spillover effects of online exposure on different hotel market segments. These effects change from a competitive to a contagious effect with a decrease in class ratings. Practical implications Low-class hotel managers should take effective actions to avoid possible negative spillovers from others’ service failure incidents. Hotel managers could consider the synergy of different strategies rather than a single response strategy to minimize losses. Originality/value This study theoretically broadens knowledge about the negative impact of online exposure on Chinese hotel revenue. Additionally, the findings examine the dynamic spillover effects on hotels in different segments. Furthermore, they extend the existing findings on the negative impact of online public opinion crises.

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