By Daniel Edward Craig

Traditionally, hotels have made pricing decisions based on a combination of demand forecasts, supply, operating costs, competitor activity, and gut feel. Market performance is measured in terms of indexes of occupancy, rate, and revPAR from data provided by companies like PKF Consulting and STR Global.

In terms of guest satisfaction, however, hotels have known little about how they fare against competitors. Social media has changed that by bringing reviews and feedback into the open, enabling an important new measure of market performance: the Guest Satisfaction Index (GSI).

Why important? Increasingly, travel shoppers are bypassing traditional sources of information and advice and turning to other travelers on review sites and in social networks. “Online reputation management is becoming hugely important to hotels because reviews have a direct correlation with demand, the holy grail of revenue management,” Corin Burr, Director of Bamboo Revenue in London.

But how easy is it to rank guest satisfaction among hotels?

With over 45 million reviews to draw from, TripAdvisor’s Popularity Index probably provides the most comprehensive ranking system. The index is derived from a proprietary algorithm that takes into account the quantity, quality, and timeliness of reviews, among other factors. Hoteliers can drill down further in the Owners’ Center, where they can compare performance to competitors and the destination as a whole via the Customer Satisfaction Index (CSI), a Market Metrix 0-to-100 scoring system derived from seven key review components.

Recently, online travel agencies beefed up efforts to amass reviews, likely motivated by SEO benefits and conversion rates. A 2010 PhoCusWright survey found that OTA shoppers who visited hotel review pages were twice as likely to book.

But so far OTA reviews hardly represent the wisdom of the crowds. In recent searches of London hotels by Guest Rating on Expedia and Hotels.com, none of the top ten hotels listed had more than a handful of reviews. The number one hotel on Hotels.com had just one review—in a foreign language. A similar search on Orbitz produced no more than five reviews of each of the top ten hotels, some of them several years old. Only Booking.com offered anything resembling a representative sample, with between 68 and 824 reviews of the top ten hotels ranked by Review Score.

Of course, the priority of OTAs is to sell rooms, not to rank hotels. Yet on TravelPost, which doesn’t sell rooms, a search of London hotels sorted by User Rating produced three reviews or less of each of the top ten hotels. The number one hotel had only one review—from 2004. Google Places, which also doesn’t sell rooms, lists up to thousands of reviews per property aggregated from a variety of sites. That positions it nicely to offer the ultimate ranking of guest satisfaction, but at present it doesn’t offer the option to sort hotels by review score.

Meanwhile, the top ten hotels on TripAdvisor’s Popularity Index feature from 102 to 802 reviews per property, each with a handful of reviews posted in the past week.

To make sense of reviews, hotels are turning to reputation monitoring tools that aggregate, organize, and score review data from across the web. The information has typically not been made available to travelers, although that’s beginning to change.

Barcelona-based ReviewPro offers a Quality Seal for hotels to post to their website that displays the Global Review Index^TM (GRI), a 0-to-100 score derived from a proprietary algorithm that aggregates reviews from more than 60 travel review sites in eight languages. Munich-based TrustYou Analytics offers a similar seal. But few hotels display these seals—unlike TripAdvisor badges, which are becoming ubiquitous, at least among properties with rankings to brag about.

Recently, ReviewPro published a list of “Top 10 Hotels in Berlin According to Online Guest Satisfaction” ranked by the GRI. Said CEO R. J. Friedlander, “For the first time the hotel sector has an independent online reputation benchmark that takes into account reviews from reviews sites and online travel agencies from around the world.” The company intends to roll out rankings for other cities in the coming months.

Meanwhile, San Francisco-based Revinate is about to introduce an internal measure for hotel clients called the Guest Satisfaction Comp Index (GSCI). “The GSCI is straightforward and doesn’t use any algorithm or black box analytics,” explains Michelle Wohl, VP of Marketing and Client Services. “We take a property’s average rating across the leading review sites and OTAs and compare it to its competitive set to provide a score. It allows hotels to see how they are doing against their comp set in terms of guest satisfaction.”

Revinate’s index will be particularly helpful to hoteliers because it’s measured in the same format as occupancy, rate, and revPAR indexes, with a score of 100 being fair market share.

The availability of such data paves the way for hoteliers to use reputation metrics to guide revenue decisions, a topic I’ll explore further in my next post.