Sunmee Choi & Anna S. Mattila (Cornell Hotel & Restaurant Administration Quarterly): The impact that a hotel can have on customers by sharing a frank and specific list of pricing practices ("revenue management" [RM]) is significant, according to a peer-reviewed journal article published in 2005. Choi & Mattila conducted a study of 120 travelers (all waiting for flights from Reagan National Airport in Washington, D.C.), providing them with three distinctly different scenarios regarding a hotel's rate-management policies. The result of the research determined that the scenario with the most detailed information on hotel pricing was preferred by far more customers than the other two. Looking deeper into these results, the authors report that while merely providing information on the varying rates offered by the hotel improved customer perceptions of the hotel, which alone did not "...improve customers' perceptions of fairness." What did improve perceptions of fairness in the minds of customers was when the hotel explained that rates varied according to day of the week, length of stay, and how far in advance the reservation was made.
When customers surveyed in the Choi & Mattila research project received no information on rate schedules, they believed the hotel process unfair. So, in effect, a hotel's candor through the release of RM policies is a kind of "benefit" in itself; this suggests that the hotel agent on the phone with the potential customer should offer, "fairly complete information." In conclusion, Choi and Mattila assert that offering detailed RM information relieves customers from being suspicious that "the hotel was gouging customers" or that the customer could have received a more attractive rate "by haggling."
Ran Kivetz (Marketing Science): Ran Kivetz opens his piece by announcing that his material is based on five studies involving "both real and hypothetical choices" for customers. The salient point of his article is a question: what influences people's trade-offs between receiving a certain reward (a deterministic reward) from a hotel, or tossing the dice for a more risky gamble when the reward involves placing the customer's name in a hopper from which a significant prize is offered as a lure (uncertain rewards). When it comes to customers and their decisions regarding frequency programs (FP), Kivetz writes that there is a "trade off" between the probability and the magnitude of rewards that the customer might earn for investing effort (i.e., time and money). When a customer puts out effort, an expectation for reward is created; the higher the requirements, the greater the expectation, Kivetz explains.
The dynamics involved in this trade off include the following three hypotheses: a) once a customer puts out effort, that effort "enhances" his or her preference for "sure-small rewards over large-uncertain rewards"; b) the preference for reward "certainty" is satisfied when the effort being asked of the customer is "intrinsically motivating"; and c) the more the level of effort is increased, the greater the chances for an "inverted-U effect" on the preference of "sure-small" over "large-uncertain" rewards.
Moreover, when the customer is asked to invest "a stream of future efforts," toward the ultimate reward, Kivetz goes on, expectations are raised relative to the "fair or appropriate size of the reward." And rewards that fail to meet those raised expectations will be seen as "unfair losses"; rewards, on the other hand, that meet "or exceed" expectations will be coded as "gains."
Kivetz reports on a survey of 186 respondents who were waiting in a major train station; the participants were randomly given the choice between being part of an FP that required a 10-night stay (which of course involved effort) and participating in an effortless free raffle. Of those train passenger participants who chose a reward, fifty-nine of the 69 respondents (74%) chose the "sure small" reward. Additional information obtained from the Kivetz article includes: a) when an effort activity is "inherently enjoyable" or motivating, there is a strong likelihood of lowered reward expectations; and b) participants who enjoyed a particular effort activity were "less likely to prefer the sure-small reward" as contrasted with individuals who didn't find the activity (effort) pleasurable.
This last finding was backed up through a survey of 232 east coast high school students who were offered a choice to participate in a survey that would place them randomly in either a math survey or a poetry survey; in each case, the students would be asked to put out effort, that is, to evaluate new learning materials once a week for four weeks in the category they were placed in. Following the conclusion of the survey, those who chose to be participants would then receive a reward of their choice: either a $20 bill (a "sure-small" reward) or a one-in-twenty-five chance at winning $600 in cash. For the students who enjoyed math and wound up in that group, they tended to take the risk of winning $600; and for those who did not like math (and this held true for the rules regarding the poetry group), they went for the sure-small reward of twenty dollars.
What can these data provide for hotel marketing professionals creating loyalty rewards programs? One possible helpful concept that emerges from Kivetz' work is that asking potential customers to put forth effort for rewards will more likely result in them reaching for the greater riskier rewards if they are motivated by the effort, or simply enjoy the effort. Hence, it is incumbent on the hotel to find out (through surveys) what their customers enjoy doing, and what they would rather not participate with.
Anna S. Mattila (Cornell Hotel & Restaurant Administration Quarterly): In this research piece by Mattila, the writer puts forward the notion that just offering rewards does not result in customer loyalty. Additionally, the hotel must foster in guests "some form of emotional bonding" with the hotel's brand. And while the topic of commitment has been alluded to previously in this paper, Mattila provides fresh examples of why "commitment" is the most important concept "in any relationship that involves loyalty" - and that emotional responses are also major factors as regards guest loyalty. Initially, on the topic of loyalty, Mattila points out that the typical American traveler has in his or her possession several Hotel chains' rewards program membership cards. Indeed, the most recent study by J.D. Power and Associates reports that only one-third of the 13,335 travelers that were surveyed showed "strong loyalty" to a particular hotel brand.
Adding to this problem is the fact that most frequent-guest programs "look alike," Mattila asserts, and that sameness greatly reduces the effectiveness of the programs. Mattila alludes to a recent survey by Colloquy (through focus groups) that showed guests could not tell the difference among several frequent-guest programs once the logos were taken off the promotional materials. One of the issues that goes into this sameness problem for hotels is that frequency benefit programs do not build loyalty if the customer places most of his or her emphasis on the gathering of "points" instead of on the superior offerings and services of the hotel.
Mattila concludes by restating that when a hotel guest becomes dependent on accumulating points (to get those coveted benefit rewards) and no longer relates to the quality of his or her stay (food, amenities, comfort), no loyalty is shown. To remedy this problem, hotels need to increase emotional bonding by "carefully analyzing the data provided by frequent-guest programs." That way, the hotel begins to more fully understand individual customers' preferences, and the hotel can then portray a message to the customer that they truly care.
Byung-Do Kim, Mengze Shi & Kannan Srinivasan (Management Science): In this research article, the authors study the use and "optimal design" of rewards programs in the context of "capacity management." Kim, et al., conclude that by providing incentives for firms to set higher current prices, reward programs can actually help hotels increase revenue. First of all, hotels have very strict capacity constraints, in that the price tag that goes along with making adjustments in those capacity constraints - like building new hotels for example - is very expensive. Hence, it behooves the hotel chain to make the best of its existing capacity constraints. For example, when a hotel has "excess capacity" and a low marginal cost, it makes sense to fill those rooms with reward-related guests, and with fewer available rooms, the price competition with other hotel chains is reduced.
Moreover, reward programs may well enhance market prices by compensating a hotel's loss in current sales "with a gain in future sales" - providing of course that the reward program truly advances the loyalty and commitment of present and future guests. This paper goes into serious mathematical (empirical) formulae to project its findings; a person familiar with algebra and trigonometry would feel right at home working through many pages of their 37-page paper (no page numbers are available since the piece was not in PDF format); for the…