LOS ANGELES—As revenue management moves from the traditional inventory optimization model and into the world of price optimization, hoteliers need to better understand consumers’ willingness to pay, said panelists during the Hospitality Sales and Marketing Association International’s Revenue Optimization Conference.
During a panel titled “Reputation’s influence on pricing,” Kelly McGuire, executive director at hospitality and travel global practice for SAS Institute and member of HSMAI’s Revenue Management Advisory Board, shared the findings of a recent study she co-authored with a professor from Penn State University.
The study looked at how reputation and price affects consumers’ purchasing decisions, McGuire outlined. For the purpose of this study, she and her co-author focused on the business traveler but also used a previous study they worked on together as a comparison, which focused on the leisure traveler booking patterns.
“It is actually crucial these days to understand all the factors that may influence the willingness to buy so that as revenue managers, we can make the right pricing decisions, both tactically and strategically,” McGuire said. “We look at our business in terms of our demand forecast and our pricing, but consumers buy a little differently.
“They’re looking at our price and our competitor’s price, but they’re really assessing value and quality. They want to understand the trade-off,” she said.
McGuire and her co-author surveyed more than 500 United States’ business travelers, asking them to choose from three hotels all in an equally good location, that had the same basic amount of service and the same amenities. The variables were the hotel brand and three different attributes of reviews, she said. The researchers screened for business travelers who traveled at least six times a year and who made their own reservations.
The study varied review sentiment (positive or negative), language (very emotional or descriptive) and content (about the room or service within the hotel), McGuire said.
The researchers then looked at one additional element: loyalty programs.
“Because we knew that loyalty program membership likely played a pretty strong role in, or could, in a business traveler’s decision, we added a third level to that brand attribution, which was a preferred brand,” McGuire said. The three hotel choices included an unknown brand, a brand they would have been familiar with that wasn’t their preferred brand and then their preferred brand.
McGuire said the typical surveyed business traveler on average had 2.38 loyalty memberships, and about 45% of them belonged to a loyalty brand that was not from a traditional hotel brand, so either one of the online travel agencies or something like Preferred Hotels.
The results? Of the business travelers surveyed, the sentiment of reviews had the highest impact on choice followed by brand, ratings then price and lastly, the language of reviews. Leisure travelers cared most about sentiment of reviews, followed by price, rating, TripAdvisor rank and brand, according to McGuire’s previous research on leisure travelers.
McGuire shared the following key takeaways from the business traveler study:
Reviews matter. Business travelers want to know what the experience will be.
Loyalty membership is key. Business travelers will put up with “good enough” to accrue points.
Business travelers still recognize a deal.
From the hotelier’s perspective
The results of this study gives smaller brands some hope, said Monica Xuereb, VP of revenue management at Loews Hotels & Resorts.
“Even when you’re up against these ubiquitous massive loyalty programs, online reputation can really have an impact,” Xuereb said.
She said pricing is not the “be all end all” of a consumer’s decision, so hoteliers need to take a step back and look at where they stand from a reputation standpoint versus the same competitors.
“One of the things we’ve done at Loews is we’ve just started to put a lot more focus on (reputation management), and this has given us a little more confidence in pricing,” she said, adding that demand is good this year and it is a good time for hoteliers to take a chance.
Xuereb said Loews is starting to get the revenue managers more involved in looking at reputation-management data. She said that earlier this year, Loews partnered with Ideas
to collect reputation data from 17 different OTAs to conduct beta testing, she said.
Xuereb said like most hotel companies, Loews has some revenue managers who override the revenue-management system, so she wanted to see if their decisions were matching the data.
“What we found is that when we looked at certain hotels and we used the online reputation-management data that actually matched the higher prices the revenue managers were overriding,” she said. The data suggested revenue managers should sell at higher prices.
“I’m personally very excited about this. I think this is kind of a new frontier for revenue management because all this hard work that’s going into maintaining online reputation; I believe that now is the time to garner benefits of that reputation by actually having some opportunity in pricing,” Xuereb added.