The Wired Hotel: The Price is Right

By Jerry Tarasofsky CEO, iPerceptions Inc. | January 27, 2012

Humans are price-conscious beings by their very nature. For most people, the mental calculus underpinning the selection between two goods or services of comparable quality but differing prices will always be a no-brainer - the cheaper choice is the smartest choice. This is particularly true in an economic climate such as the one we live and do business in, one that is rife with fears of recession and concerns about the rising prices of food and gas. In times such as these, people are more and more prone to thinking only with their wallets when confronted with traveling expenses.

Let's put that aside for a moment and talk about another aspect of the search for lower costs. Since the turn of the century, the ubiquitous online travel agencies such as Expedia and Hotwire have fed the bargain hunting beast by building reputations for ultra-cheap hotel rates, which have forced frazzled hoteliers to fight a furious rear-guard action in the form of Best Rate Guarantees. These price-matching vehicles have come to be invaluable assets when bookers unearth cheaper rates on third party sites after making online reservations. Some chains will not only match the lower rates, they will also throw in further discounts, gift cards, or other perquisites in an effort to imprint the forcefulness of their guarantees in their minds of their customers.

So, the challenge put before the hotelier is how to run a profitable and vibrant online channel in a tremendously price-sensitive environment. This article will explore cost sensitivity by various important and high value visitor segments during the first quarter of 2008. I'll be referencing data collected from our Voice of Customer surveys, which currently run on the websites of 29 major hospitality brands. Combined, these studies comprise the voices of over 100,000 actual website visitors.

We measure cost sensitivity in our hospitality studies by looking at whether visitors feel the website in question is helping them to save money on room rates. We term this the Bottom Line Attribute. It's a telltale indicator of whether or not the site is indeed fulfilling both the spirit and the letter of the ubiquitous Best Rate Guarantee. We measure Bottom Line on a 0 to 10 point scale, as we do with all our other Attributes of the online experience. For the industry in general, the score for Bottom Line came in at 6.6 for Q1 2008. On our 11 point response scale, a score of 6.6 is in the mid-range of "Good." While this may be an acceptable score at an aggregate level, drilling down into the segments, we see that, in many cases, there is ample room for improvement.

Slicing the data by hotel type, we see that visitors to the sites of economy brands posted a collective score for Bottom Line of 6.9. Visitors to midscale and extended stay brand sites each posted scores of 6.7 for Bottom Line. Markedly lower scores were found among visitors to the websites of luxury hotel brands; their score for Bottom Line came in at 6.2. Some of this, naturally, can be attributed to the fact that the nightly rates are significantly higher for luxury hotel sites than other types. It is also possible, however, that luxury hotel sites are less proactive in ensuring that their rates align with the best offers being promoted on the discount agency websites. In terms of nightly rate, luxury might well be an adequate excuse for costliness, but it need not be an excuse for lack of competitiveness.

There are no statistically significant differences in the way leisure and business travelers score Bottom Line in this dataset, but visitor intent is a key fault line. Travelers who were onsite to research/compare hotel room rates posted a score of 6.3, while visitors onsite to book a reservation posted a substantially better score of 6.8. This implies that the cognitive act of price differentiation occurs fairly high up in the booking funnel. What's more, this means that the sites in our database are doing a less than optimal job of convincing price shoppers that they are getting the best possible rate. Our research has shown that visitors will frequently undertake several visits - you can call it online reconnaissance - before they actually go ahead and book a reservation. As the data shows, the hardest part of persuading your visitors that you offer the best online rates for your rooms occurs during their first interactions with your website. This is confirmed by the fact that first-time visitors posted a composite Bottom Line score of 6.3.

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