Best-available-rate Pricing at Hotels: A Study of Customer Perceptions and Reactions
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Rohlfs, Kristin V.; Kimes, Sheryl E.
Variable pricing, or demand-based pricing, is a popular revenue management technique by which hotel managers set different nightly rates for the same room based on expected room demand. Operational policies and procedures associated with variable pricing may be confusing to customers, especially if they are not familiar with the practice. Best-available-rate (BAR) pricing is an attempt to reduce that confusion and to guarantee that the guest is quoted the lowest available rate for each night of a multiple-night stay. As a result, instead of paying the same price for each room-night, the guest would pay different prices each night. Understanding customers' perceptions of a BAR policy can help hotel managers better apply revenue management tools that maximize revenue without compromising guest satisfaction. This study surveyed 153 travelers to measure their reactions to BAR pricing and their perception of its fairness, acceptability, reasonableness, and honesty. We found that for a multiple-night stay, customers prefer to be quoted individual rates for each night (non-blended rates) rather than the average price per night over the stay (blended rates). Overall, customers found individual rates to be significantly more fair, acceptable, reasonable, and honest than blended rates. However, customer reactions to non-blended and blended rates differed between frequent and infrequent travelers. Frequent travelers found no difference in fairness between blended and non-blended rates while infrequent travelers perceived non-blended rates to be more favorable. The findings of this study can help managers more precisely tailor the way that they give rates and information to customers during the reservation process. Respondents preferred to be quoted individual rates, so that they know they are paying the lowest available nightly rates, rather than blended rates, which conceal the actual nightly rates. To ensure that customers have positive perceptions of price fairness and honesty, managers should quote non-blended rates, such as those that accompany BAR guarantees. Managers should also pay close attention to the implementation of a BAR guarantee policy, as the poor execution of a complex variable-pricing policy could compromise its acceptance.
hotels; variable pricing; demand-based pricing; revenue pricing
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