How Hotel Guests Perceive the Fairness of Differential Room Pricing

This study examines the relationship between how customers perceive the fairness of prices and their intentions when booking hotel rooms online. Specifically, it focuses on the context of a budget hotel chain in the United Kingdom.

Methodology

To gather data for this study, a survey was conducted among 506 customers of the budget hotel chain. The following statistical techniques were used to analyze the data:

1. Structural Equation Modeling (using the Partial Least Squares approach)
2. Multigroup t-test
3. Permutation tests

These analyses served two purposes:

1. Validate the structural model, with price fairness as the independent variable and behavioral intention as the dependent variable.
2. Determine if the causal model holds true for different customer segments, such as first-time vs repeat customers and leisure vs business travelers.

Key Findings

The analysis revealed the following key findings:

1. There is a significant, direct relationship between customers’ perceptions of price fairness and their behavioral intentions (such as booking again or recommending the hotel).
2. First-time leisure customers are particularly sensitive to dynamic pricing practices and often view them as unfair.
   • This suggests that budget hotel chains should be cautious when implementing such practices with new customers who may not be familiar with them.

Understanding Price Fairness

When customers assess whether prices are fair or not, they take into account several factors:

1. Reference Price: What they have paid in the past for similar products or services.
2. Distributive Justice: How prices compare to what others are paying.
3. Procedural Justice: How prices are determined and communicated by the company.

It is important to note that customers can differentiate between situations they perceive as fair and those they perceive as unfair. They tend to have strong negative reactions towards unfairness but may struggle to determine what is fair.

The Impact on Customer Satisfaction and Loyalty

When customers perceive a hotel’s revenue management practices as fair, it has positive implications for the business:

1. They are more likely to be satisfied with their stay.
2. They are more likely to return to the same hotel in the future.

Factors Affecting Perceived Fairness

In this survey of 815 people, we examined the effects of three factors on respondents’ assessment of the fairness of hotel rate policies:

1. Familiarity with the pricing practice
2. Provision of information about the practice
3. The brand class of the hotel

Out of these three factors, familiarity with the pricing practice emerged as the most influential factor affecting perceived fairness.

This suggests that revenue managers should prioritize efforts to educate and familiarize guests with their pricing practices in order to enhance perceived fairness