Cornell Study Finds that Guests Want to Know Hotels' Rate Rules

Hotel revenue management techniques cause hotels to adjust their rates in response to demand and occupancy patterns. But if guests don't know what those rate-changing rules are, they tend to think of them as being unfair. A new Center for Hospitality Research (CHR) study found that hotel guests are more likely to think a rate setting practice is fair when they know how the rules work. The study, "How Hotel Guests Perceive the Fairness of Differential Room Pricing," by Wayne Taylor and Sheryl Kimes, is available at no charge from the CHR at http://www.hotelschool.cornell.edu/research/chr/pubs/reports/2010.html.

The hotel revenue management study involved showing one of eight distinct scenarios to 815 U.S. respondents, and asking whether the hotel was acting fairly in that particular scenario. Taylor, who is a marketing analyst for the Venetian Resort Hotel Casino, conducted this study for his senior thesis at the Cornell School of Hotel Administration, where Kimes is the Singapore Tourism Board Distinguished Professor in Asian Hospitality Management.

"We know that hotel customers accept the idea that hotel rates will change, but we don't know when guests will think of those rate changes as being fair," says Kimes. "We tested three factors that we thought would influence guests' perceptions of fairness -- type of trip, amount of information, and hotel brand class, in this case either five-star or three-star. Of those three factors, only familiarity with the rate rules had a strong effect on perceptions of fairness."

As a result of this strong indication that guests want to know the rules, Taylor and Kimes suggested that hotel revenue managers focus their efforts on increasing guests' familiarity with their pricing practices. While this does not necessarily mean publicizing all of a hotel's rate fences, hotels could post the conditions for a particular rate class on its website, and indicate ways for guests to lock in a particular rate (typically, by booking far in advance). In the current environment, Taylor and Kimes suggest that reservation agents and front-desk clerks can explain differential rates and their associated conditions, thus shifting the guest's focus away from simply asking for a discount.