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summarizes the main conclusions and present the limitations of the current work, and also outlines directions for future research 2 Literature review Many studies  

Best-available-rate Pricing at Hotels: A Study of Customer - CORE

5 jan 2005 · Entitlements in the Market,” American Economic Review, Vol 76, No 4 (1986) hotel's website and found that the lowest available rate on the

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TheCenTerforhospiTaliTyresearCh.org • Cornell UniversiTy

BesT-availaBle-raTe priCing •

Best-available-rate pricing at Hotels: a study of Customer perceptions and Reactions By Kristin V. Rohlfs and sheryl e. Kimes, ph.D.CHR Reports www.chr.cornell.edu

Best-available-rate pricing at hotels:

a study of Customer perceptions and reactions advisory Board

James C. Allen, Executive Vice President, Wines,

Southern Wine and Spirits of New York

Jan A. deRoos, Ph.D., HVS International Professor of

Finance and Real Estate, Cornell University

Cathy A. enz, Ph.D., Louis G. Schaeneman, Jr., Professor of Innovation and Dynamic Management, Cornell

University

Unmesh Joshi, Chairman and Managing Director,

Kohinoor Group

Jo-Anne Kruse, EVP Human Resources, Travel

Distribution Services Division, Cendant

Corporation

Craig Lambert, SVP Portfolio Management, CNL

Hospitality Group

Mark V. Lomanno, President, Smith Travel Research

W. Michael Lynn, Ph.D., Associate Professor, Cornell

University

suzanne R. Mellen, Managing Director, HVS

International

Leland C. pillsbury, Chairman and CEO, The Thayer

Group of Companies

Angel santos, VP of Marketing for Healthcare and

Hospitality, JohnsonDiversey

Janice L. schnabel, Managing Director, Marsh's

Hospitality Practice

David A. sherf, SVP, Real Estate/Asset Management,

Hilton Hotels Corporation

Judy A. siguaw, D.B.A., Dean, Cornell-Nanyang

Institute

Barbara talbott, Ph.D., EVP Marketing, Four Seasons

Hotels and Resorts

elaine R. Wedral, President, Nestlé R&D Center and

Nestlé PTC New Milford

R. Mark Woodworth, Executive Managing Director,

The Hospitality Research Group

Thank you to our generous corporate supporters.

JohnsonDiversey

Nestlé

Southern Wine

and Spirits of New York

Friends • ARAMARK • DK Shifet & Associates • ehotelier.com • Gerencia de Hoteles & Restaurantes • Global

Hospitality Resources • Hospitality World • hospitalitynet.org • Hotel Asia Pacic • Hotel China • Hospitality Initiatives

India • Hotel Interactive • Hotel Resource • International CHRIE • KPMG

Japan/Global Management Directions

• Lodging Hospitality • Lodging Magazine • Mobile MoneySaver • National Hotel Executive Magazine • PKF

Hospitality Research • Resort+Recreation • The Resort Trades • RestaurantEdge.com • Shibata Publishing Co. •

Smith Travel Research • The Lodging Conference • TravelCLICK • UniFocus • WageWatch, Inc.

WiredHotelier.com

senior partners partners sponsors

AIG Global Real Estate Investment

Bartech Systems International

Cendant Corporation

Four Seasons Hotels and Resorts

HVS International

Kohinoor Group

Marsh"s Hospitality Practice

Thayer Group of Companies

Willowbend Golf Management

Wyndham International

tH eCe Nte R F o RHo s p ItA L ItYRe s e A RCH.o R G • BesT-availaBle-raTe priCing Cornell UniversiTy • TheCenTerforhospiTaliTyresearCh.org executive summary that confusion and to guarantee that the guest is quoted the lowest available rate for each night of a multiple-night stay.

As a result, instead of paying the same

price for each room-night, the guest

Understanding customers" perceptions

of a BAR policy can help hotel managers better apply revenue management tools that maximize revenue without compro- mising guest satisfaction. this study surveyed 153 travelers to mea- sure their reactions to BAR pricing and their perception of its fairness, acceptability, rea- sonableness, and honesty. We found that for a multiple-night stay, customers prefer to be quoted individual rates for each night (non- blended rates) rather than the average price per night over the stay (blended rates). overall, customers found individual rates to be signif- icantly more fair, acceptable, reasonable, and honest than blended rates. However, custom-

Best-available-rate Pricing

at Hotels:

A Study of Customer

Perceptions and Reactions

By Kristin V. Rohlfs

and sheryl e. Kimes, ph.d. V ARIABLE PRICING, OR DEmAND-BAsED PRICING, is a popular revenue management based on expected room demand. operational policies and procedures associ- ated with variable pricing may be confusing to customers, especially if they are not familiar with the practice. Best-available-rate (BAR) pricing is an attempt to reduce TheCenTerforhospiTaliTyresearCh.org • Cornell UniversiTy

BesT-availaBle-raTe priCing •

about the authors

Kristin V. Rohlfs

sheryl e. Kimes er reactions to non-blended and blended rates in fairness between blended and non-blended rates while infrequent travelers perceived non- blended rates to be more favorable. agers more precisely tailor the way that they give rates and information to customers dur- ing the reservation process. Respondents pre- ferred to be quoted individual rates, so that they know they are paying the lowest available nightly rates, rather than blended rates, which conceal the actual nightly rates. To ensure that customers have positive perceptions of price fairness and honesty, managers should quote non-blended rates, such as those that accom- pany BAR guarantees. Managers should also pay close attention to the implementation of a BAR guarantee policy, as the poor execution of a complex variable-pricing policy could com- promise its acceptance. • BesT-availaBle-raTe priCing Cornell UniversiTy • TheCenTerforhospiTaliTyresearCh.org

CHR Reports

Best-available-rate Pricing

at Hotels: a study of Customer perceptions and Reactions

One outgrowth of revenue management

is pinpointing the actual rate for each room- night, even though most hotels typically quote a blended or average rate for multiple-night stays. With the ability to pinpoint nightly rates, a practice has grown of charging guests the in- dividual price for each room-night of a mul- tiple-night stay—that is, giving guests the best available rate. The purpose of this study was to measure customers" perceptions of and reac- tions to best-available-rate (BAR) policies. We examined customers" perceptions of the fair- ness, acceptability, reasonableness, and hones- ty of best-available pricing to help hotel manag- ers set appropriate policies and procedures that maximize revenue while preserving guest satis- faction. In this report, we explain best-available- rate pricing; present existing research on rele- vant issues; describe the study we conducted; plications; and describe the limitations of our study and future research possibilities.

Duration controls allow hotels to manage

customer arrivals and lengths of stay by clos- R

EVENUE MANAGEMENT

determining which reservation requests to accept from which customers to maximize rev- enue, revenue management matches room supply with customer demand by using price controls 1

By Kristin V. Rohlfs and sheryl e. Kimes, ph.d.

1 Sheryl E. Kimes and R.B. Chase, “The Strategic Levers of Yield Management," Journal of Service Research, Vol. 1, No.

2 (1998), pp. 156-166.

TheCenTerforhospiTaliTyresearCh.org • Cornell UniversiTy

BesT-availaBle-raTe priCing •

2 see: expedia.com, orbitz.com, and priceline.com. for a discussion of how those best-price policies have oper- ated, see: Gary M. thompson and alexandra failmezger, “Why Customers shop around: a Comparison of Hotel Room Rates and availability across Booking Channels," CHR Reports, Vol. 5, no. 2 (January 2005), available at theCenterforHospitalityResearch.org. 3 see: cendant.com, hilton.com, marriott.com, and starwood.com. for a discussion of how the chains" best-price policies have functioned, see: thompson and failmezger, op.cit.

Revenue management has opened the

way for best-rate hotel pricing, but do guests understand and accept it? ing dates to arrivals, requiring minimum stays, or setting maximum stays. price controls per- on the desire of some customers to have more to pay lower prices. although hotels have been using duration and pricing controls for mul- tiple-night stays, customers have long received the same price for each night of their stay, even if lower rates are available on particular days of the stay. for instance, suppose that a cus- tomer requested a reservation for a three-night midweek stay and the hotel"s revenue manage- ment system indicated that the lowest price for pricing policy might suggest that the guest be believed that customers preferred having one room rate (for the entire stay) over having sev- in recent years, however, online distribu- tion companies and hotel chains" internet sites teeing to customers the best available nightly prices for each night of a multi-night stay. third- party reservation companies (notably, expedia, orbitz, and priceline) have instituted various versions of best-rate guarantees as a marketing tool to attract business. 2 as room rates have become transparent and customers could see tribution channels, hotel companies (includ- ing Cendant, Hilton, Marriott, and starwood) able-rate guarantees. 3

Hotels also use best-

rate guarantee policies to direct bookings to their websites, as it is generally the least costly reservation channel and it is thought that di- rect booking with the hotel helps build brand loyalty.

Revenue management had already made

the reservation process complex, but the addi- tion of best-rate guarantees has made the reser- vation process even more complicated for con- sumers to navigate and understand. instead of quoting a single blended rate—roughly, the average price for each night of a consecutive- night stay—many hotels now use best-available- rate (BaR) pricing. With BaR pricing, a hotel would quote the lowest available rate for each night of a multiple-night stay, meaning that rates, for the same room. as reservations repre- understanding guests" reactions to BaR pric- ing is essential for ensuring their satisfaction and building customer loyalty. the successful application of BaR pricing (and all revenue balance between maximizing revenue and pre- serving guest satisfaction.

Elements of BAR Pricing

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