The hotel industry seems to have gained consumer acceptance towards the practice of accommodation rate adjustments, but it's not entirely clear whether guests are happy to look at constantly changing rate practices or consider them fair. by Glenn Withiam*
Since revenue management is still a relatively new practice for many guests, two researchers from the Cornell School of Hotel Management looked at the factors that make rate change policies seem fair among guests.
Professors Sheryl Kimes and Wayne Taylor — who is currently a marketing analyst for the Venetian Resort Hotel Casino in Las Vegas — tested the following three factors: familiarity with the practice, providing information about it, and the hotel brand's market scale. Of these, only the first factor made the price change practices seem fair.
The study, "How Hotel Guests Perceive Equity in Differential Room Rates," can be downloaded at no cost from the Cornell Center for Hospitality Research site, chr.cornell.edu.
What makes fairness so important in setting rates is that it is a key factor in guest satisfaction, not forgetting the many factors that also come into play. Kimes and Taylor argue that guests who thought a hotel is fair in its rate-setting practices were more likely to return to such a property.
Previous studies have shown that people don't delay in recognizing when a practice is unfair, but they aren't always able to tell when someone behaves equitably. Those who stay in hotels more frequently are well aware that rates change from time to time, but they cannot understand why such changes occur. When guests don't understand the changes, they may seem unfair... and unsatisfactory.
Since guests could use different criteria to judge fairness and inequity, Kimes and Taylor tried to measure both judgments in hotel rate setting practices. They did so by showing one of eight cases of rate-setting to 815 people. Respondents were asked several questions regarding whether they thought the hotel followed a fair policy and whether the hotel had taken advantage of the guest.
In this way they developed an index of equity and one of inequality. Based on those two measures, they concluded that familiarization with rate-setting practices has the greatest effect on perceptions of fairness or inequity, while the scale of the hotel's brand and the purpose of the guest's trip had a much smaller effect.
Equity had its weight for these respondents. They said they were more likely to return to a hotel when they thought their rate-setting policies were fair. In this case, familiarization with such practices had the greatest effect on perceptions of equity, and the provision of information also contributed to the same.
That said, Kimes and Taylor acknowledge that hotels are not going to reveal the basis of their revenue management decisions. Instead, they recommend that establishments allow guests to understand how the pricing program works in general terms. For example, employees at the front desk or websites might explain the conditions associated with one or more rates, so that guests might feel they are being charged fairly. This applies especially to promotions, so that guests can see how the promotion can work for them.
Kimes and Taylor see their study as a first step in understanding the dynamics of how customers perceive equity, as hotels expand their revenue management programs. To be sure, these researchers realize that just because customers say they will do something (as in the present study), there is no guarantee that they will do so when the time comes. However, the study shows the importance of avoiding the possibility of appearing arbitrary (and unfair) in hotel rate setting programs.
* Glenn Withiam is director of publications for the Cornell Center for Hospitality Research.
