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Yield Management hotel

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Perceived Unfairness of Prices
Resulting from Yield Management
Practices in Hotels
Jean-Michel SAHUT
IDRAC Business School, Lyon, France
Lubica HIKKEROVA
IPAG, Paris, France
Pierre-Charles PUPION
University of Poitiers, France
Context and Problematic (1/3)
• Yield Management (YM) is a management tool used to
maximize profits from limited available capacity
• such as airline seats or hotel rooms
• YM is based on demand segmentation and price adjustments in
real-time
• However, the consequences of YM for customers are not
always positive
• Customers are then in a positive position since the price variations
incurred due to YM means that they pay a lower price.
• However, at other times, customers may find themselves paying a
high price for standard services => They perceive this situation as
being unfair.
Context and Problematic (2/3)
• YM can have very unfavourable consequences for the
firm
• When there is a perception of injustice, the customer directs his
dissatisfaction towards the main source of the injustice.
• The customer’s dissatisfaction will be turned towards the brand or
the seller
• It is fundamental that price increases induced by YM are
seen as fair in the eyes of customers.
Context and Problematic (3/3)
• Among the practices of YM which disadvantage
customers, which ones are perceived as being unfair, and
above all, which ones are perceived as being fair?
• What are the levels of perceived unfairness for each of
these YM practices?
• Is this perception of unfairness (or fairness) variable
according to customer profiles (their past experience,
price consciousness, etc), and the characteristics of YM
practice?
Plan
• Review of the Literature
• Perception of yield management practises
• Methodology and Data
• Empirical Results
• Conclusion
Perception of YM practices
• The fair price is the price which a customer would be
ready to pay (Chandrashekaran and Jagpal;1994 )
• The customer evaluates if the difference between the
price charged by the seller and a price used for
comparison is acceptable (Xia, Monroe and Cox; 2004)
• Comparison with a regular price, a reference or a standard.
• A price that the customer believes is the right price considering the
value of service
• When the gap between the two prices is high, the customer’s
judgment can be perturbed, and the perception of unfairness
increases (Zollinger;1993 , Hamelin; 2000),
Perception of YM practices
• To be perceived as fair, the posted prices must be logical,
transparent, clear cut and fixed so that they cannot be
called into question (Bennett;1984)
• When determining a selling price (with rebate or
surcharge), it is important that customers are able to
understand the reasoning behind it (Misse;1995)
• Equity in terms of costs and benefits
• A clear distinction of the service offered
• When customers benefit from a loyalty program, they
expect special treatment and consider that the price
differences are more unfair (Sahut & Hikkerova, 2014).
Hypothesis
• H1: YM practices are negatively perceived by consumers
• H2: YM practices are even more negatively perceived that
they are not justified by causes that are perceived as
external and uncontrollable by hotel.
• H3: The perception of YM practices by consumers
depends on how they are presented (positive / negative
frame)
• H4: Price changes resulting from yield management are
perceived more unfavourably by loyal consumers.
Methodology
• The questionnaire is based on 4 scenarios
• Scenario 1: A hotel offers different prices for the same type of
room according to the season. The price of the room during the
winter tends to be less expensive than during the summer period.
• Negative frame: In June, the price of the room is 30% more
expensive than in November
• Positive frame: In November, the price of the room is 30%
cheaper than in June.
• Scenario 2: A hotel offers different prices for the same type of
room according to the period of reservation. The later the
reservation is made, the higher the price.
• Negative frame: If you reserve your room a few days before
the date of your stay, you pay a 30% surplus on the price
• Positive frame: If you reserve your room two months before
the date of your stay, you get a 30% discount on the price.
Methodology
• The questionnaire is based on 4 scenarios
• Scenario 3: A hotel imposes charges for a no-show equivalent to
the cost of the first night.
• Negative frame: Any booking cancellation made less than 24
hours in advance involves the payment of the first night.
• Positive frame: Any booking cancellation made 24 hours
before your stay is free.
• Scenario 4: A hotel offers different prices for the same type of
room according to the days of the week. The price of the rooms is
higher on Tuesdays and Saturdays.
• Negative frame: On Tuesdays and Saturdays, the price of the
room is 30% more expensive.
• Positive frame: On Mondays, Wednesdays, Thursdays,
Fridays and Sundays, the price of the room is 30% cheaper.
Methodology
• 1010 hotel customers of varied sex, age and socio-
professional categories were questioned using a
questionnaire administered face-to-face.
• In order to mitigate the constraints of normality which are
difficult to respect using a 5-point scale
• In the hotel industry yield management mainly concerns
hotels with at least 2*, therefore we gave preference to
respondents who had stayed at least once in this class of
hotel
Results
These results confirm the
work of Kimes and Wirts
(2002) which stipulates that
a transaction which only
varies in terms of price is
highly likely to be regarded
as unfair. This perceived
unfairness comes from the
fact that the firm is solely
aiming, in the eyes of the
customers, to increase its
own profits.
Mean
Scenario 1
Scenario 2
Scenario 3
Scenario 4
2,43
3,79
3,24
3,91
Standard
Deviation
1,069
1,094
1,176
0,852
Table 1 : Level of unfairness perceived in the 4 scenarios (5-point scale, N = 1010)
Results
Mean
STD
Negative Frame
2,43
1,01
Positive Frame
1,72
1,43
Total
2,11
1,57
Negative Frame
3,79
1,08
Positive Frame
3,02
1,64
Total
3,41
1,53
Negative Frame
3,24
1,18
Positive Frame
1,76
1,56
Total
1,91
1,57
Negative Frame
3,91
0,83
Positive Frame
3,65
1,03
Total
3,78
1,04
Student Test
Scenario n° 1
0,007**
Scenario n°2
0,011**
Scenario n°3
0,027**
Scenario n°4
0,029**
Results
Socioprofessional
category
Experience
Affect
Price sensitivity
Sex
Age
Profession
Familiarity
Hotel quality_ nb of stars
Loyalty
Work/Leasure
Price researches
Price changes
Scénario 1
Non sig.
Non sig.
Non sig.
**
*
**
*
*
*
Scénario 2
Non sig.
Non sig.
*
**
*
*
*
*
Non sig.
Scénario 3
Non sig.
Non sig.
*
Non sig.
*
*
Non sig.
*
Non sig.
Scénario 4
Non sig.
Non sig.
*
*
**
*
*
**
*
Table 2 : Influence of the customer profiles on the perception of unfairness
KW : Kruskal Wallis test or MW : Mann-Whitney test
* : Significance at 1%
** : Significance at 5%
Results
• For the four scenarios, having a hotel loyalty card is a discriminating
factor. Loyal customers expect special treatment and consider the
price differences more unfair, even when they may appear justified
(as for scenario 1).
• All these results show that the hotels should focus their efforts on
those customers who have the most difficulty in perceiving the
fairness of a price increase
• Low budget tourists, loyal customers and the well-informed customers
Nevertheless, the cost of these efforts should not be higher than the
benefits gained from a fairer perception of YM practices by the customers.
• Consequently, the privileged target could be that of “loyal customers”
more especially as loyalty programmes provide a tool which can be
used to avoid or to reduce customer conflict thanks to the attribution
of gifts or price reductions.
Conclusion (1/2)
• We show that it is possible to practice price variations
which are disadvantageous for the customers, but which
are still perceived as fair.
• The feeling of fairness exists when the customer thinks
that the hotel does not seek to increase its profits, except
if it is to align itself with competitors, or if these profits also
benefit the customer fairly.
• This results underline the fact that for some YM practices, it is a
priori difficult even impossible to make them fair in the eyes of the
customers.
• In our study, whatever the customer profile studied, payment for a
night in the event of a last minute cancellation is systematically
regarded as unfair.
Conclusion (2/2)
• Nevertheless, the analysis of the effects of the
characteristics of yield management practices shows that
there exist solutions to reduce the perception of
unfairness.
• Finally, the risk of YM practices is not negligible since it
can lead a high number of customers no longer choosing
the hotel, without giving the hotel the chance to repair the
damage.
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