In many ways hotels are trying to be more like airlines. Don’t do it.
At various conferences in the last year or so, I’ve heard an interesting topic bubble up frequently—the idea that hotels would do well if they shifted to an airline pricing model. Supporters of this idea are vocal and they lay out an interesting argument: People booking a hotel should pay at the time of booking, not at the time of stay. If they need to change or cancel their stay, they pay fees to do that, just like they do with airlines.
The benefits would be many, supporters say: Travelers are accustomed to how airlines price and how to pay for those services, so it’s not like this would be a huge stretch that would require a massive mindset shift.
Also, this would give hotels much more cash flow generation right up front. And just like with flights, when people know they’re paying up front and know they will pay to make changes, they might be more likely to treat the transaction seriously and show up.
When you get into a conversation about this with one of its fervent supporters, it’s easy to get caught up in the moneymaking glow. They talk about pricing tiers that, just like with airlines, let travelers choose (and pay for) the amount of flexibility they want. Buy your hotel room on a basic economy tier and you’re locked in at a slightly lower rate but you can’t make changes. Book that room at a mid-level tier and you’ll pay higher up front, but you’ll get some flexibility in making changes.
Of course this already is happening at hotels that offer discounts for rooms booked and paid in advance. It’s a very simple discount model, though: Pay in advance (the hotel gets cash now and a direct booking, which it wants) and you get a slightly lower rate (you get to save a few bucks).
But as you hear people talk about this idea of fully shifting the universal hotel payment model to a pay-at-purchase one, often they get carried away. It’s easy to make this not just about rate, but also about amenities. Let’s evolve this into a model where you pay up front for a bed, but then when you get to the hotel, you have to pay for even basic amenities, they say. Drop some quarters in a slot in the shower and you get some shampoo. Swipe your credit card and you get an hour of time in the hotel gym. Want to store your suitcase? Well, you booked on a basic economy ticket, so that’ll be an extra $50.
And that’s exactly what would happen, because it’s exactly what’s happened with airlines.
It’s true. Look at us: We have been conditioned to think it’s OK, even fantastic, to pay huge sums of money to strap into a giant dirty metal tube and hit the skies in order to get from Point A to Point B faster. It’s totally fine that we have to clean our own seat and tray table. That terrible plane bathroom that hasn’t been cleaned in three days and has more urine on the floor than a boy’s college dorm bathroom? Yes! Allow me the privilege to wait in line to use it right after someone who has mysteriously been in there for an hour. And please—let me just hand you $10 for that mini can of Pringles and another $20 for subpar internet access. This is great!
We’re barbarians. And we accept it for one simple reason: There is no choice in airlines. Oh, there are many airline companies, but there is zero choice, especially when you compare that choice landscape with that of the hotel industry.
For that reason, pricing hotels and their amenities like airlines will never, ever work. Yes, hotels, you can dip a toe in the waters of pre-paid bookings. That’s fine, that’s beneficial. But I fear you won’t stop there. You’ll get greedy and want to go after the full monty nickel-and-dime method, and let me tell you now, it won’t work because there’s already way too much choice in hotels.
That’s what sets hotels apart in the overall travel landscape (compared to airlines and cruises, for example), so it’s important not to forget that, and it’s important to use it to your advantage.
Choice, and consumer behavior around choice, is a fascinating topic. If you’re interested in learning more, check out the concept of choice architecture online. This Freakanomics podcast also is a really interesting illustration of how choice influences customer behavior and spend.
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