1. 
Introduction

The sharing economy
describes companies and communities which enable the shared usage of physical
and non-physical resources. The size of this relatively new part of the global
economy is estimated to have a capacity of 26 billion dollars, thus being a
considerable industry in comparison to conventional industries (Malhotra &
Van Alstyne, 2014). Digital platforms, being part of the sharing economy, are
one of the newer types of businesses with a steadily increasing economic
importance. They allow direct supply without a middleman and are therefore less
costly to maintain, while being faster than conventional means. The strong
connection between demand and supply allows real time interaction. Unlike so
called “pipelines”, platforms do not necessarily have a physical infrastructure
or assets, which makes them independent of large investments, while being more
competitive. The platforms inherent networks are their most important asset due
to the fact that most platforms are affected by so called “network
externalities”, which means that the value of the platform increases with the
number of users as it is based on the interaction between as much people as
possible.

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 Platforms build on the contribution of four
groups: Owners, Providers, Producers and Consumers, although the boundaries are
not always clear as the following research paper will show (Van Alstyne, Parker
& Choudary, 2016). As positive as this all sounds, platforms and the sharing
economy which they belong to, also have controversial aspects, like for
instance the displacement of more traditional industries. The following
research paper, which debates the question “To what extent does TripAdvisor
influence the consumers travel decisions and how do managers cope with the
effect?”, will discuss the effects of TripAdvisor on the travel-industry and
will also give a statement about the whole review-sharing economy. I am
interested in this topic as I use the service myself and I am convinced of the
fact that TripAdvisor changes peoples decisions related to traveling, resulting
in the need for strategic changes of the priorities and behavior of
restaurants, hotels and other tourist attractions. The following paper will
discuss TripAdvisors rating system, its impact on consumers and its effect on
marketing and sales policies.

2. 
Theoretical Background

TripAdivsor is a website which provides reviews
for restaurants, hotels and activities

all around the world. It was founded in the year
2000 and has its headquarter in the

United States of America.

 

The use of the service is free and most of the
content is consumer-generated. With more than

450 million average monthly users and around 570
million reviews, TripAdvisor is a market

leader in its sector (TripAdvisor log files, average monthly unique
visitors, Q3 2017).

TripAdvisors success can partly be explained by
the fact that the overwhelming variety of

restaurants, hotels and tourist activities is
measured, sorted and ranked with the help of millions

of users. This division of knowledge makes the
service a direct and trustworthy intermediary

for the process of decision making for
consumers. The different rankings and filters enable a

diversity which makes the service attractive
regardless of the individuals values (Jeacle &

Carter, 2011). TripAdvisors contracts with
certain booking websites like booking.com
makes it

easy for users to directly book without the need
of making additional steps. More than 80% of

the people research their journey online, which
shows the extent of this issue. The common

reasons for bypassing conventional tour agents
is the simplicity of getting information in real

time. According to different surveys, consumer
generated content is seen as more trustworthy

although issues like the manipulation of
competitors happens frequently (Filieri, Alguezaui &

Mcleay, 2015).

 

The problem which occurs with online rating
services like Tripadvisor is, that

conventional, traditional and old-fashioned
restaurants and hotels are strongly affected by

disadvantages due to their absence of
representation on TripAdvisor and social media in

general.  TripAdvisor
has been accused of having fake reviews and censorship which might

influence consumers in a negative way (Liu,
Schuckert & Law, 2015).  As it is
part of

TripAdvisors business model, hotels and other facilities
have the ability to pay for extra

advertisement and attention, which means that
they are listed above the ranking list. This might

give the impression, that the premise is of higher
quality, although it is marked as an

advertisement. This issue represents a conflict
of interests, as TripAdvisor wants to keep its

reputation as neutral rating platform but on the
other hand gives premises the opportunity to get

extra attention by paying for it. The success of
this economy and the platforms is often

associated with disadvantages for employees in
the conventional tourism industries, as people

use the platform instead of contacting travel agencies.
Another aspect is the fact that

governments have a delay in reacting to the
changes which might enable the use of legislative

gaps. The platform is closer connected to its
users than the government which makes it hard to

control certain processes (Malhotra & Van
Alstyne, 2014). On the other hand, governmental

instances have the possibility to use the
platform in order to reveal criminal activities, which

include the creation of fake reviews and competitive
distortion.

 

In order to measure
the extent of TripAdvisors influence on consumers, it is necessary to

analyze its rating system and the way people
interact on the platform.

 

2.1       
The rating system

TripAdvisor uses a star rating system which reaches from 1 to 5 stars,
with 5 stars being the best rating. Users can write comments on their rating to
explain how they came to their decision. Managers and owners of the facilities
are able to answer on comments on their own page which means that direct
communication between the consumers and the facility is possible. Furthermore,
the ranking order is also based on the popularity of the hotels and the amount
of good reviews. Photos and videos which can be posted by customers as well as
by the staff of the premises give more insight into the facility.

TripAdvisor also offers a forum for every listed city, in which users
can look up additional information or ask more specific questions about certain
premises or the city in general. This function helps tourists in their process
of decision making as they might need more information than the general
information listed beneath the website entry on TripAdvisor. Users can create
topics and any other user can comment on them which means that the platform
offers its users transparent information. The forum allows tourists to get
advice on very specific topics which are not dealt with on the general page.
Authors and advisors can be distinguished by the look of their profile. The authors
are mainly people which do not know a lot about the destination while the
advisors are often inhabitants or experienced tourists of the certain city and
can therefore give advice and answer the questions. Participating in the forum
is completely voluntary and does not lead to any rewards. Due to the fact that
it is relatively easy to become an advisor, fake reviews and manipulation are
very difficult to prevent. The following part discusses to what extent consumers
are influenced and how managers change their strategy in order to cope with
this change in the most effective way.

2.2       
TripAdvisors impact on consumers and managers

TripAdvisor offers
its users a very broad variety of different restaurants, hotels and activities
which means that consumers have better means for comparison and evaluation of
the different facilities.

 

 The fact that people have an overview over
almost every premise in the certain city, explains the higher demand for better
quality and the unlikeliness of users visiting unregistered and lower quality premises.

Due to different
surveys, tourists choose user-generated advice over professional advice, which
might cohere with the general adoption, that like-minded people have a better
understanding of the own interests and values (Casaló, Flavián, Guinalíu &
Yuksel, 2015). Casaló et al. (2015) compare different tourism platforms in
order to show how users rate the credibility of a platform in relation to its
overall popularity. TripAdvisor is seen as more trustworthy than smaller
platforms which can be connected to its success. This proves that not every
platform in the tourism sector has the ability to influence users in the same
way.  Due to the change in behavior of
the consumers, managers have to adapt in order to retain their position on the
market. A more offensive strategy regarding social media is necessary to keep
up with competitors. Due to the fact that competitors will also strive for a
better strategy, managers are under constant pressure to fit the steadily
increasing demands. Traditional and conservatively managed facilities need to
change their strategy in order to avoid displacement into the background.
Social media is a way to attract new customers and can be seen as an advantage
or as a problem, depending on the reaction of the executive staff. Higher class
hotels are more likely to include response management into their daily business
(Liu, Schuckert & Law, 2015). Response management has the intention to
adapt to the consumers wishes and process the constantly changing demands. The
facility has the possibility to contact unsatisfied customers in order to ask
questions about their experience and how it can be improved. The creation of a
good reputation is harder for smaller premises, as they are not able to handle
as much customers at the same time as bigger ones, which means that it is
difficult to keep up with the amount of good reviews, which poses an even
stronger pressure to perform services of high quality.  TripAdvisor allows direct interaction between
the customers and managers, which has not been possible before the occurrence
of social platforms in the tourist sector. Nevertheless, TripAdvisor is not
able to avoid manipulation on its website which comes in form of consumer
manipulation as well as the manipulation of competitors in order to damage their
reputation (Liu et al., 2015). Managers can use the platform to have a look in
which way their strategy differs from competitors and react on it.

TripAdvisor has the
advantage to have strong network effects which will be dealt with in the next paragraph.

2.3 The Network
effect

The network effect describes the increase in value of a good or service
in relation to the number of people using it (Aggarwal & Yu, 2012).

TripAdvisor is strongly dependent on network effects, as the
participation of its users is essential to its business model. The amount of
people actively participating is crucial for the broad and detailed ranking of
the certain facilities. A high number of participants makes TripAdvisor a more
trustworthy and reliable source, as manipulative ratings are outweighed by the
participation of honest users. People are more likely to do whatever most
people have done, which means that facilities which already have a good
reputation can easily maintain it (Cowen & Tabarrok, 2014). These direct
effects of network externalities are also followed by indirect effects, as a
larger number of users does not only lead to more interaction but indirectly
also leads to an increase in the incentive for managers to represent their
facility on TripAdvisor which attracts new users. This dynamic spiral effect
automatically leads to an increasing user base. TripAdvisor might make it hard
for facilities to get a second chance due to the fact that bad reviews stay on
the page and will lead to less attention. The network effect can be divided
into a same-side and a cross-side effect. The same-side effect describes an
increase in value of the platform due to an increase in people on the same
consumer side. In case of TripAdvisor this means that an increase in the number
of consumers leads to more forum entries and ratings. The cross-over effect is
an increase in value due to the increase of consumers on the other side, like
an increase in represented restaurants and hotels which leads to a broader
supply and range of products (Eisenmann, Parker & Van Alstyne, 2006).
TripAdvisors strong network effects contribute to my hypothesis, that consumers
as well as managers are clearly influenced by consumer-generated reviews
resulting in changed behavior on both sides. The service offers a closer interaction
with the other consumer side, helping tourists to find what they desire and
managers to effectively adapt to the changed interests.

Conclusion

TripAdvisor makes user-generated content its main tool for rating and recommending
premises in order to give its users the feeling of honesty and transparency.
TripAdvisors success and value is built on the continuous addition of new
content by attracting users, who are willing to provide more information and
use the platform for their process of decision making (Fang, Ye, Kucukusta
& Law, 2016).

TripAdvisors compatibility with mobile devices gives it the ability to
be used as a digital traveling companion, keeping the user up-to-date with
real-time advice. This research paper provides evidence for the growing
importance of social media and the division of knowledge in the tourism
industry, which cannot be reached by conventional tourist agents and experts
and is therefore of increasing importance for the whole industry.

The platform provides new insights for the tourism and travel industry
by showing how the digitization benefits both consumer sides. The restaurants,
hotels and other facilities have to adapt to the change and become more active
on online platforms like TripAdvisor, in order to retain or even improve their
current situation. With the use of the right strategy, managers can see social
media as free advertisement on an international level, which might attract new
customers. This strategy comes in form of response management, which has the
intent to implement ideas and improvement proposals in order to match the customers’
expectations and improve the overall quality. The division of ratings into
different user groups, like families or couples, gives managers the ability to
optimize their performance by implementing customized improvements for the
particular user group. Users are evidentially influenced by ratings on
TripAdvisor and see consumer-generated content as more trustworthy and reliable.
Conventional and traditional facilities need to change their strategy and
become more active on social platforms in order to stay competitive.

Review-sharing platforms in the tourism sector like TripAdvisor have a
steadily increasing impact on the travel and tourism industry, which means that
user-generated content will be of central importance for the decision making of
tourists (Baha’is, 1998). This tendency of increasing importance gives an
outlook on the future, in which conventional means of travel planning become subordinate,
leading to changes in the strategy of travel agencies, which might appear in
form of better representation on social media. The character of traveling has
been changed as people are not willing to try something out by themselves
anymore but rather have a look at ratings to avoid risks. The fact that social
networks have proved to be of high importance on consumer behavior, hotels,
restaurants and other facilities have to change their way of marketing, as
missing the step towards digitization might have fatal consequences (Kozinets,
1999) (Wang, Yu & Fesenmaier, 2002).

 

 

References

Aggarwal, C. C. & Yu, P. S.
(2012). On the network effect in Web 2.0 applications. Electronic Commerce Research and Applications, Vol.11(2). 142-151.

 

Buhalis, D. (1998). Strategic use
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Casaló, L.V.,
Flavián, C., Guinalíu, C. & Yuksel, E. (2015). Do online hotel rating
schemes influence booking behaviors? International
Journal of Hospitality Management. Vol.49,

28-36.

 

Cowen, T. & Tabarrok, A.
(2014). Competing for Monopoly: The Economics of Network Goods. Modern Principles of Economics, 307-314.

 

Eisenmann, T., Parker, G. &
Van Alstyne, M.W. (2006). Strategies for Two-Sided Markets. Harvard Business Review, Vol.84(10), 1-11.

 

Fang, B., Ye, Q., Kucukusta, D.
& Law, R. (2016). Analysis of the perceived value of online tourism
reviews: Influence of readability and reviewer characteristics. Tourism Management, Vol.52, 498-506.

 

Filieri, R.,
Alguezaui, S. & Mcleay, F. (2015). Why do travelers trust TripAdvisor? Antecedents
of trust towards consumer-generated media and its influence on recommendation
adoption and word of mouth. Tourism
Management, Vol.51, 174-185.

 

Jeacle, I. &
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Kozinets, R.V. (1999).
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Liu, X., Schuckert, M. & Law,
R. (2015). Can Response Management Benefit Hotels? Evidence from Hong Kong
Hotels. Journal of Travel & Tourism
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Liu, X., Schuckert, M. &Law, R. (2015). Insights into
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Malhotra, A. & Van Alstyne, M. (2014) The dark side of the sharing
economy… and how to

lighten it. Communications of the
ACM, 57(11), 24-27.

TripAdvisor log
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http://ir.tripadvisor.com/static-files/2f0abbe5-b1ca-4541-98d5-c9239df06ec9

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Wang,
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