Pricing In a Social World: Five Findings for Revenue Managers

By Kelly McGuire Vice President, Advanced Analytics, Wyndham Destination Network | June 02, 2013

Co-authored by Breffni Noone, Assistant Professor, Pennsylvania State University School of Hospitality Management

Price transparency has probably had the most profound impact on revenue management since the discipline took hold in the hotel industry. Once customers could easily compare rates across the market, some of the fundamental assumptions of the revenue management problem changed. Revenue managers, who were initially concerned about their demand and their price, suddenly had to also think about their competitors' prices and how those prices will impact their demand and their price. Because consumers can easily access and compare rates across a market, they also think about the hotel price and the competitors' prices, but approach this information and their ultimate purchase decision in the context of value. The purchase of a hotel stay has a good deal of uncertainty associated with it. Consumers try to mitigate the risk of the unknown by gathering as much information as they can in advance of purchase. They assess the value of the purchase to them by matching what they know about the experience they will receive against the price they must pay.

It is not news to anyone that we are in the midst of the next change that will have profound impact on revenue management – value transparency. With the advent of widely-available user-generated content (UGC), consumers have a new source for information about their hotel purchase. It is easier than ever to get reams of information from similar consumers in the form of UGC – positive and negative - from review sites, OTAs and even hotel websites. In order to continue to price effectively, revenue managers need to understand how consumers are using this information, with price, to make the hotel purchase decision.

To shed some light on this issue, my colleague, Breffni Noone, Assistant Professor at The Pennsylvania State University, and I recently conducted a research project designed to get at the way that consumers evaluate hotel room purchases in a social world. We designed scenarios based on a typical online purchase of a leisure stay and manipulated the price (low and high relative to an established reference price), the aggregate rating (low or high out of five) and the review sentiment (mostly positive or mostly negative). Our background research told us that consumers' perceptions of the quality and value of the purchase are strong determinants of their purchase intention, so we tested these perceptions as combinations of price, aggregate ratings and user reviews changed. We deployed these eight scenarios via an email link to a survey to a representative population of the US market, asking consumers to evaluate their quality and value perceptions of the hotel scenario they were presented with.

For those who like to dig deep into research results, I've provided a reference at the end of this article to the academic paper(1).

At a high level, we found the following:

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