How Hotel Guests Perceive the Fairness of Differential Room Pricing

By. Sherri Kimes 17th Jan 2010

Book Discription

File:Cornell University Logo.png - WikipediaNB. This is an Whitepaper written By:   Wayne J. Taylor and Sheryl E. Kimes 

This study examines the causal relationship between consumers’ price fairness perceptions and behavioral intentions in the context of online hotel bookings. Using a cross-sectional sample of 506 customers of a budget hotel chain in the United Kingdom, structural equation modeling (using the partial least squares approach), multigroup t-test, and permutation tests were conducted to (1) validate the structural model where price fairness is the exogenous variable and behavioral intention is the endogenous variable and (2) examine whether the causal model is invariant (equivalent) across customers from different market segments—including, first-time and repeat customers, leisure, and business travelers. Results from the analysis supported a significant, direct relationship between customers’ perceptions of price fairness and behavioral intentions. The results of the multigroup test and permutation tests further indicated that first-time leisure customers are more sensitive to dynamic pricing practices and tend to perceive these practices as unfair. Thus, the budget hotel chain may want to be very cautious with new customers who are not familiar with this pricing practice.

Perceived Fairness and Perceived Unfairness

When customers assess price fairness, they consider a number of things, including what they’ve paid before (sometimes referred to as a reference price), what other people pay (sometimes referred to as distributive justice), and how the prices are set (sometimes referred to as procedural justice).
Researchers differentiate between perceived fairness and perceived unfairness.
5 Consumers are able to quickly identify unfair situations and often have strong negative reactions to them. Conversely, it is more difficult for consumers to assess whether a policy or action is fair. Thus, people usually can tell when something is unfair, but it’s harder for them to discern what is fair

when customers perceived hotel revenue management practices to be fair, they are more likely to be satisfied with the hotel and are more likely to return to that hotel in the future.

 In this survey of 815 people, we examined the effects of three factors on the respondents’ assessment of the fairness of hotel rate policies. Those three factors were hen customers perceived hotel revenue management practices to be fair, they are more likely to be satisfied with the hotel and are more likely to return to that hotel in the familiarity with the practice, provision of information about the practice, and the brand class of the hotel. Of those three, we found that familiarity with a pricing practice was far and away the most important factor affecting perceived fairness. The implication is that revenue managers should focus their efforts on increasing guests’ familiarity with their pricing practices.

in applying revenue management policies, hotels use pricing and duration controls to manage demand and maximize revenue. While earlier hotel revenue management approaches relied grown in importance. When hotels implement differential pricing strategies, guests are charged different room rates for similar rooms depending on customer characteristics (e.g., senior citizens, employees of certain corporations, or members of certain organizations) and demand characteristics (e.g., day of week, occupancy, city-wide events). Hotels theoretically can charge as many different rates
as they would like, but if customers view the hotel’s rate policies as unfair, they are unlikely to patronize
the hotel in the future.

About The Author

About Sherri Kimes

Professor Kimes  Is considered to be one of the top thought-leaders and experts in Revenue Management in the world. She has been working in Revenue Management since 1988 and has had the privilege of helping to educate some of the top leaders in Revenue Management. She frequently engages with corporate, government, education, advisory, legal, and private equity

View Complete Profile