Can Direct Hotel Room Pricing Policy Explanations Strengthen Guest Loyalty?

Anyone who has traveled regularly is well aware that hotel rates change from time to time, but even the most seasoned of travelers may not be able to guess why a hotel may change its room rates. By now, probably all frequent travelers know that hotels set their rates according to recommendations by revenue management systems, and many know that hotels apply various rules to determine who qualifies for those rates.

Unless a hotel reveals its rate fences, though, travelers may not be able to guess how the rules are applied -- and the result may be that would-be guests could consider the hotel's policies to be unfair. A new study from the Cornell Center for Hospitality Research looks at this question: What makes guests consider a hotel rate setting policy to be fair -- and when is it unfair? The study, "How Hotel Guests Perceive the Fairness of Differential Room Pricing," by Wayne Taylor and Sheryl E. Kimes, is available at no charge from the CHR. Taylor is a marketing analyst for the Venetian Resort Hotel Casino in Las Vegas, and Kimes is the Singapore Tourism Board Distinguished Professor of Asian Hospitality Management at the Cornell School of Hotel Administration.

Taylor and Kimes presented one of several scenarios to a sample of 812 respondents in a balanced national sample. Based on earlier research, they anticipated that customers would be more comfortable with the fairness of a rate if those customers had information about the rules that applied to that rate. They also thought that customers would consider it to be less fair if an upscale or luxury hotel adjusted its rates when compared to a midscale or economy hotel. They were right about familiarity, but market scale had no effect at all on fairness perceptions.

Taylor and Kimes observed that as hotel guests have become more familiar with revenue management pricing practices, those guests have come to regard variable hotel room pricing as more acceptable. This gradual acceptance of revenue management by frequent travelers occurred largely during the 1990s. But the fact that guests accept a practice does not mean that they consider it to be fair. For example, the jury is still out on whether passengers consider it fair when the airlines charge baggage fees.

For this study, familiarity by itself was the largest factor in respondents' judgment of whether the hotel was being fair in its pricing practice. But the other element was understanding the rules and reasons for a pricing policy. Thus, their study indicates that explaining the rate situation may improve perceptions of fairness. Certainly no hotel is going to give away trade secrets or competitive information, and hotels do not, in fact, want to focus too heavily on price as the chief or only reason for a guest to book a room.

There's no question that a certain amount of information asymmetry is beneficial in setting hotel rates, but hotel guests are quick to sniff out unfair policies. This study indicates that fairness is one strong element in a customer's decision to return to a hotel, and in the current environment a returning guests is a welcome sight.