“Non-transparent pricing benefits no one”

Jan 29, 2010

Revpar Guru responds to a recent Cornell University study on rate transparency and guest perception

Published: 29 Jan 2010

Revpar Guru responds to a recent Cornell University study on rate transparency and guest perception

A Cornell University study published this month examined how hotel guests perceive fairness in terms of differential room pricing.

The report concluded that the best way to combat perceived unfairness in pricing - without sacrificing revenue management strategy - is to increase the transparency of pricing methodology. Guests, the study infers, are more comfortable with the price they pay for their room if they understand why they pay that price, and under which conditions they might have encountered a different price.

We do agree with the premise that hotels - and revenue managers in particular - should make a concerted effort to disclose the demand-based, time-sensitive nature of room pricing along with the various “rate fences” a hotel might choose to set. Hoteliers must also ensure that cancellation and change policies are clearly explained -- prior to booking -- to prevent guest upsets. That said, at a time when sophisticated automated revenue management systems can make dozens of adjustments to rates across multiple online sales channels in the span of minutes, we also believe that total transparency of the pricing process is unrealistic. But that doesn’t mean that hotels don’t need to make an effort to increase the transparency of their rates and pricing strategies. Pricing transparency is the only way to maintain consumer trust and encourage repeat business.

For revenue management to be most effective, it must have the latitude to make real-time, demand based rate adjustments. Though the Cornell study certainly doesn’t advocate a return to static pricing schemes, it implies that the best path to increasing the perception of fairness among customers is to increase the level of familiarity with pricing practices. In our mind, this is not necessarily achieved (or achievable) through a wholesale disclosure of complex pricing procedures associated with automated revenue management systems.

In today’s market, non-transparent pricing benefits no one. Cornell’s study confirms that consumers resent them, and hotels gain little from keeping guests in the dark about their pricing strategies. We agree with the report’s prescriptive remedies of proactively listing the conditions by which a consumer might obtain a better rate. We further believe that the appropriate avenue for this is the hotel website.

The Cornell study touches on a couple of points that hint at improvement in perceptions of hotel pricing strategy:

      • First, there is a comparison made early in the study between airline pricing and hotel pricing which indicates that consumers perceive differential pricing in both industries as equally fair – a statement which we don’t agree with. In our experience, especially since the institution of baggage fees and other ancillary charges into the cost of an airline ticket, consumers are becoming more distrustful of airlines’ pricing methods. In our opinion, this type of distrust could one day pervade the hotel industry if it does not put more effort into increasing the transparency of their pricing strategies. This communication will only help the industry continue to rebound after last year’s weak market, by making consumers feel safe to travel again – not work against it.
      • Second, the study indicates that younger travelers are more comfortable with differential pricing than their older counterparts. This bodes well for the future of revenue management within the hotel industry.
      • First, there is a comparison made early in the study between airline pricing and hotel pricing which indicates that consumers perceive differential pricing in both industries as equally fair – a statement which we don’t agree with. In our experience, especially since the institution of baggage fees and other ancillary charges into the cost of an airline ticket, consumers are becoming more distrustful of airlines’ pricing methods. In our opinion, this type of distrust could one day pervade the hotel industry if it does not put more effort into increasing the transparency of their pricing strategies. This communication will only help the industry continue to rebound after last year’s weak market, by making consumers feel safe to travel again – not work against it.
      • Second, the study indicates that younger travelers are more comfortable with differential pricing than their older counterparts. This bodes well for the future of revenue management within the hotel industry.
      • First, there is a comparison made early in the study between airline pricing and hotel pricing which indicates that consumers perceive differential pricing in both industries as equally fair – a statement which we don’t agree with. In our experience, especially since the institution of baggage fees and other ancillary charges into the cost of an airline ticket, consumers are becoming more distrustful of airlines’ pricing methods. In our opinion, this type of distrust could one day pervade the hotel industry if it does not put more effort into increasing the transparency of their pricing strategies. This communication will only help the industry continue to rebound after last year’s weak market, by making consumers feel safe to travel again – not work against it.
      • Second, the study indicates that younger travelers are more comfortable with differential pricing than their older counterparts. This bodes well for the future of revenue management within the hotel industry.
      • First, there is a comparison made early in the study between airline pricing and hotel pricing which indicates that consumers perceive differential pricing in both industries as equally fair – a statement which we don’t agree with. In our experience, especially since the institution of baggage fees and other ancillary charges into the cost of an airline ticket, consumers are becoming more distrustful of airlines’ pricing methods. In our opinion, this type of distrust could one day pervade the hotel industry if it does not put more effort into increasing the transparency of their pricing strategies. This communication will only help the industry continue to rebound after last year’s weak market, by making consumers feel safe to travel again – not work against it.
      • Second, the study indicates that younger travelers are more comfortable with differential pricing than their older counterparts. This bodes well for the future of revenue management within the hotel industry.

    • Consumers may be becoming more accepting of differential pricing, but it remains the task of hoteliers and revenue managers to encourage this comfort level while maintaining an effective, demand-based pricing strategy. This month’s Cornell study indicates that these two concepts are far from mutually exclusive, and we couldn’t agree more.

    By Bruno Perez & Jean Francois Mourier,
    Revpar Guru