Hotels can maximise their profits by charging precisely what customers are willing to pay for different room attributes, according to PolyU’s findings.

 

Dr Lorenzo Masiero

How much would you pay for a hotel room with just the right features? You might know, but any hotel you stay at might not. In a recent study, Dr Lorenzo Masiero, Assistant Professor at the School of Hotel and Tourism Management, and his co-researchers found that hotel managers usually rely on personal experience, trial and error or industry benchmarking to determine the relative prices of their hotel rooms. Yet these methods are rarely generalisable.

To maximise profits, Dr Masiero argues, hotels should ensure that their amenities are precisely tailored to customers’ expectations, as customers only make purchases if they believe that the value of a room “matches or exceeds” the price charged.

In a survey of over 800 guests at a luxury hotel in downtown Hong Kong, the researchers explored the perceived importance of seven key room attributes: room view, room floor, club access, free mini-bar, smartphone service and cancellation policy. They found that the most influential attribute was a harbour view, for which guests were willing to pay an extra HK$771 per night compared with a city view, that is HK$371 higher than the current hotel charge for a harbour view room. Should the hotel charge the additional HK$371 for harbour view rooms, it would increase the hotel’s annual profit by HK$7.95 million.

The guests were also willing to pay an extra HK$200 for a room above the ninth floor, an option that the hotel had not considered, and HK$226 for a mini-bar with alcohol and HK$60 for the use of a smartphone provided by the hotel. The hotel already made the latter two options available to all guests for no charge, suggesting possibilities for revenue were being overlooked.

In contrast, most of the guests seemed willing to pay less for access to the club floor than what the hotel currently charges and few were willing to pay the current rate for a full refund in the event of booking cancellation.

When considering the differences in willingness to pay for hotel attributes, Dr Masiero and his team found that business travellers would pay 25% more than leisure travellers for all attributes. Whether or not guests had visited Hong Kong before was also important, with first-time visitors placing much greater emphasis on room attributes such as free beer and wine in the mini-bar.

The findings, published in the International Journal of Hospitality Management, suggest that hotels should be able to offer deals that better match guest expectations and thus stimulate room sales. ♦