OperationsMarketingHow Business Travelers Buy: Hotel Pricing in a Social World

How Business Travelers Buy: Hotel Pricing in a Social World

There is more information than ever before at the point of purchase for a hotel stay. With ratings, reviews, price, brand, and TripAdvisor rank, consumers can get a full picture of the value of a hotel as compared to others in the market. Understanding how consumers use all of the information at the point of purchase to assess value and ultimately make a purchase decision will help hotel managers build more profitable pricing and positioning strategies. Unmanaged business travelers in particular make up a large and valuable segment for most hotels. Proper pricing and positioning to this market can have a huge impact to the bottom line.

To understand how business travelers buy, we recruited an online panel of business travelers who travel at least six times per year. The panel was shown a set of hotels with varying levels of price, brand, and user generated content (ratings and reviews) and were asked to indicate which hotel they would book. By tracking their pattern of choices, we were able to assess how important each attribute was to them, and how they used that attribute to assess value. This study was a follow up to an earlier study on leisure traveler behavior.

Here is a summary of our results:

Reviews Matter: Some in industry have theorized that since frequent business travelers are more experienced with hotel stays, they probably aren’t as influenced by reviews as a less experienced traveler might be—and instead are driven by other elements like loyalty points or status. Our results showed that business travelers do pay attention to reviews. In fact, review sentiment was the most influential attribute on choice behavior, with negative reviews having a significant negative impact on value perceptions.

Beyond just paying attention to the sentiment of the reviews, business travelers also prefer a review that provides a description of the experience, as opposed a more emotional reaction. They want to know what the experience will be like, positive or negative.

Loyalty Matters: Presumably, frequent business travelers take advantage of earning loyalty program points and status. But does this influence business traveler choice behavior and value perceptions to a greater or lesser extent than price or user generated content?

Not surprisingly, we found that loyalty program membership is highly influential on choice behavior for frequent business travelers. After review sentiment, it was the second most influential attribute on overall choice behavior. Our business travelers expressed a slight preference for a known brand over an unknown brand, but a significant preference for a brand they identified as their “preferred” brand. In fact, it appeared that business travelers were wiling to put up with an experience that was just “OK” to stay at a hotel where they could earn their points.

Price Matters: It’s a commonly held belief that business travelers are not price sensitive. However, our study results showed that business travelers did respond to a “deal” or the lowest offered price but only the lowest offered price. Once the price was raised above that lower level, changes up or down made no difference. This goes counter to previously held beliefs about business traveler’s reaction to price, suggesting that maybe there is just something about human nature that responds to a deal.

The impact of low price was not great enough to overcome the negative impact of a negative review. This result suggests that all things being equal with reputation, a hotel could use price to attract this valuable demand segment. It is important to note, however, that the price has to be the lowest in the market—a couple of dollars here or there is not going to shift business traveler demand. Of course, dropping price has other implications that need to be considered.

Building effective pricing and positioning strategies is not getting any easier. There are many levers that hotels can pull to “win” in their markets, but to be successful at this, they need to carefully assess how they stand relative to the market. Hotels with robust loyalty programs have a leg up with business travelers, but most frequent travelers have multiple program memberships—they will go to a competing hotel if yours doesn’t measure up. You still need to pay attention to how you sit within the market in both your reputation and your price, no matter how good your loyalty program is.

About the authors: Kelly A. McGuire, Ph.D., is executive director of hospitality and travel global practice at SAS, and Breffni M. Noone, Ph.D., is associate professor of hospitality management at The Pennsylvania State University.