ShareFive academics discussed their research projects related to revenue optimization as part of “Research in Action,” a session at HSMAI’s 2018 Revenue Optimization Conference. We asked them to explain what they researched — and how revenue-optimization professionals can apply their findings on the job.
1. Who Writes Reviews and How Does This Matter? — Saram Han, Ph.D. Candidate, Cornell University
What was the focus of your research? I started this study to understand why self-motivated TripAdvisor hotel reviews tend to be more negative than the retailer-prompted reviews which are collected by guest satisfaction survey companies (e.g., ReviewPro, Revinate).
What were your primary findings? According to the utility function of WOM, self-motivation to share his/her opinion is largest when someone has an extremely negative opinion about the hotel (e.g., TripAdvisor rating 1 out of 5). Reducing the burden of submitting the review (i.e., retailer-prompted reviews) allows collecting the opinions that are associated with the relatively lower sharing-motivation.
How might hospitality revenue-optimization professionals make use of this research? Allowing the customers to easily submit their reviews will increase the online reputation of the hotel.
2. Airbnb: A Boon to the Consumer, a Bane to the Hotel Industry? What the Industry Needs to Know — Makarand Mody, Ph.D., Assistant Professor of Hospitality Marketing, Boston University
What was the focus of your research? Over the last 10 years, Airbnb has emerged as a significant disruptive force to the hotel industry. Not only has the brand re-awakened the idea of home sharing and presented it as a viable accommodation substitute to hotels, there is also evidence that it is fundamentally altering how people travel in the first place — e.g., Airbnb customers tend to stay longer, stay outside the touristy neighborhoods of a city, participate in more in-destination activities, etc. The company is also pursuing a variety of strategic and tactical partnerships (through Nido, or with Marriott and TributePortfolioHomes, for example) to attract travelers. In the face of this growing threat, my research, done along with my colleagues from across the country, focuses on how hotels can compete in terms of the guest experience in this rapidly changing business environment.
What were your primary findings? Well, our research encompasses a variety of interrelated areas. Some of our key findings pertaining to the traveler experience have been:
- Hotel experience designers now have to think about creating memorable guest experiences through 10 dimensions — the four original dimensions of escapism, education, aesthetics, and entertainment as proposed by [B. Joseph] Pine and [James H.] Gilmore [authors of The Experience Economy], but also six added dimensions of localness, communitas, hospitableness, personalization, serendipity, and ethical consumerism. Our research suggests that Airbnb is outperforming hotels on all dimensions, and through that, creating memorable experiences that make people want to use the brand again and recommend it to others.
- Hospitableness, we have found, can be a key differentiator for hotel brands. The nature of Airbnb has evolved over the past few years, whereby instead of individual hosts who welcome travelers into their homes and lives, the company comprises mainly multiunit operators who list on the platform. Very often, Airbnb travelers have little or no contact with the host, since the management of the unit is either outsourced to a third-party service provider and/or the host doesn’t actually live in the unit. Think about a hotel experience, in contrast. The hotel employee is the host, welcoming travelers to their city. Employees present a significant opportunity to be the differentiator between one hotel brand to another, and our research has found that those hosts who create a welcoming environment and show a genuine desire to please and care for the guest create more emotionally satisfying and memorable guest experiences than in the case of Airbnb.
- When we compared hotels and Airbnb on how these authentic travel experiences create brand loyalty, we found evidence of two distinct pathways. In the case of hotel brands, it is the authenticity of the brand that creates brand-loyal customers, which means hotel brands must center their branding around creating a compelling and genuine brand promise, and then look to provide a customer experience that delivers on that promise. For Airbnb, we found that it was experience authenticity that creates loyal customers. When Airbnb customers feel that they have received a genuinely local travel experience and when they have had the opportunity to create stronger interpersonal bonds with fellow travelers and the local community, this endows them with a sense of wellbeing that then leads them to want to use Airbnb again. Now, while Airbnb outperformed hotels on this sense of experiential authenticity, it does not mean that hotel brands should not leverage localness and communitas. In fact, this is something that when combined with an authentic brand promise can create a differentiated brand experience that can allow hotel brands to better compete in the market.
How might hospitality revenue-optimization professionals make use of this research? While there are several things that revenue managers can do at a tactical level, from a strategic perspective, we feel that revenue managers and experience providers need to focus on what we call the EVP — the Experience Value Proposition. For too long now, hoteliers have viewed the hotel room as the sole creator of value for the customer. Even now, if you were to log on to the websites of most hotels, even the big brands, you will see endless images that display the product — the guest room, public areas, etc. We need to start thinking about travel the way a customer thinks about travel, more holistically, in terms of the value they derive from the room, the food-and-beverage offerings at the destination, and everything else that constitutes “experiences.” Everything that we do — from how we design our websites to enable search and discovery, to how we package and price the experience (and not just the hotel room), to the experience that the guest has on property — has to be designed within this new customer-value paradigm.
3. Driving Ancillary Revenue: Effective Bundling Strategies for Revenue Management — Breffni Noone, Ph.D., Associate Professor of Hospitality Management, and Myungkeun Song, Ph.D. Candidate, Pennsylvania State University; answers from Noone
What was the focus of your research? The focus was on identifying how hospitality firms can better leverage bundling to drive online purchase behavior. We focused on purchase situations where (1) the primary product being purchased is utilitarian in nature — in other words, the purchase is linked more to necessity than a discretionary choice (for example, a seat on a plane or hotel room); and (2) this utilitarian product is being bundled with a utilitarian add-on product (for example, travel insurance, grab ’n’ go breakfast) or a hedonic add-on product, hedonic meaning that the product is a largely discretionary purchase (for example, airport lounge access or spa treatment).
What were your primary findings? In our first study, we looked at how bundle discounts are framed: The bundle discount is given on the price of the add-on in the bundle (e.g., purchase a spa treatment when you book your room and save $10 on the spa treatment) versus the bundle discount is given on the total price of the bundle (e.g., purchase a spa treatment when you book your room and save $10 on total package cost). We found that framing the bundle discount as a discount on the price of the add-on was significantly more effective than framing the bundle discount as a discount on the total price of the bundle when the add-on product was hedonic in nature. Hedonic purchases are more difficult to justify than utilitarian purchases, so a bundle that provides transparent discount information regarding where the discount is coming from (i.e., the guilt-inducing hedonic add-on product) is easier to justify than a bundle where the source of the discount is not explicitly stated. This, in turn, leads to higher perceived savings and purchase intentions.
On the other hand, with a utilitarian add-on, both types of bundle discount frames (discount on price of add-on vs. discount on total bundle price) are equally effective in terms of driving purchase. A utilitarian add-on is relatively easy to justify, so it doesn’t matter which bundle discount frame is used.
In our second study, we looked at whether it is better to allow the customer to customize their bundle (i.e., the customer gets to choose which add-on — utilitarian or hedonic — to bundle with their utilitarian purchase) or to present the customer with a standardized bundle (i.e., a single add-on product on offer). We found that customized bundles are most effective when promoting utilitarian add-ons, while standardized bundles work best when promoting hedonic add-ons. With the customized bundle, the customer is forced to choose between a hedonic add-on and a utilitarian add-on. Because a utilitarian purchase is easier to justify than a hedonic purchase, customers are more likely to opt for the bundle with the utilitarian add-on. When presented with a standardized bundle, customers are not forced to make an explicit comparison between add-ons, so in isolation there is less difference in how easy it is to justify hedonic or utilitarian add-ons.
How might hospitality revenue-optimization professionals make use of this research?
The findings of this research suggest:
- When bundling a utilitarian product with a hedonic add-on, frame the bundle discount explicitly as a discount on the price of the hedonic add-on.
- When bundling a utilitarian product with a utilitarian add-on, the type of bundle discount frame that you use doesn’t matter. Both explicitly discounting the add-on product and discounting the total bundle price are equally effective in driving purchase.
- When you are trying to promote the purchase of a hedonic add-on, offer customers a standardized bundle (i.e., utilitarian product plus hedonic add-on).
- When you are trying to promote the purchase of a utilitarian add-on, offer customers a customized bundle (i.e., utilitarian product plus choice of utilitarian or hedonic add-on).
4. Do They Think It’s Fair? An Investigation of Restaurant Customers’ Perceptions of Fairness of Revenue Management Practices in Restaurants — Jason Tang, Ph.D. Candidate; Toni Repetti, Ph.D., Associate Professor of Hospitality Administration; and Carola Raab, Ph.D., Associate Professor of Hospitality Administration, University of Nevada, Las Vegas; answers from Repetti
What was the focus of your research? A study on restaurant-goers’ perception of fairness of different restaurant revenue-management techniques
What were your primary findings? We found that the more people are familiar with revenue-management techniques in hotels and airlines, the fairer they thought restaurant revenue-management techniques are. We also found that younger diners perceive restaurant revenue-management techniques as fairer compared to older diners. Education, gender, and income levels saw no significant difference.
How might hospitality revenue-optimization professionals make use of this research? This research shows that while many in F&B do not do revenue management, there may be an opportunity by educating consumers on revenue management and how demand affects this. Also, if a restaurant has a younger clientele, they may be able to implement more revenue-management techniques than if their clientele is older.
5. The Effect of Rate Parity Prohibition on Hotel Performance: A Stock Market Perspective — Abhinav Sharma, Ph.D. Candidate, and Juan L. Nicolau, Ph.D., Marriott Professor of Revenue Management, Virginia Tech; answers from Sharma
What was the focus of your research? Rate parity has been a highly contentious pricing strategy under which hotels adopt the same price structure across all distribution channels. Although rate-parity agreements between hotels and OTAs remain legal in the U.S., over the last few years several European countries have banned such agreements. This research uses methods from financial econometrics to study the effect of these bans on the market value of hotel firms, as reflected in their stock prices.
What were your primary findings? We find that hotel shareholders react positively to the passing of legislation banning rate parity. In other words, the prospect of hotels gaining more autonomy to set their own prices and the elimination of barriers to new entrants in online tourism distribution outweigh the potential advantages of rate parity. Interestingly, although rate-parity bans result in abnormal positive returns for hotel stocks, we also observe a higher level of volatility following the bans. The optimism is therefore also accompanied by higher levels of risk.
How might hospitality revenue-optimization professionals make use of this research? The answer to the question of whether to ban or not to ban rate parity depends on the hotel managers’ preferences and their attitude toward risk — i.e. risk-averse vs risk-seeker. Nonetheless, certain implications can be highlighted. For instance, managers must handle the price disparities that may arise following the bans while trying to handle the sources of uncertainty. Also, the price variations following the bans can result in consumer perceptions of unfairness that hotels must now deal with. Moreover, the banning of rate parity creates early conditions that may later foster price wars between hotels and OTAs, even if the possibility of actual price wars is remote. Obviously, prudence must guide the hotel pricing decisions, but the positioning strategy of the hotel as well as the right choice of strategic partners can reduce the probability of downward price spirals.