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This research investigates quantitatively by means of a survey among 137
often frequent retail visitors to four and five-star hotels in Thailand,
factors that influenced their hotel choices. The perceived acceptable price
range of the visitors is analyzed via questions from the van Westendorp’s Price
Sensitivity Model. Issues relating to the extraction of an optimal revenue
forecast from the model are discussed. The research provides a ranking of the
importance of amenities for booking four and five star hotels in Thailand and
price ranges that guests expect. Sustainable practices do not play an important
role in the decision to book a luxury four or five-star hotel.
Keywords: Luxury Hotels, Amenities, van Westendorp’s Price
Sensitivity Measurement Model, Room Rate Expectations, Hotel Revenue Forecast,
Thailand.
INTRODUCTION
Tourism
is an essential source of income and employment for Thailand. The luxury
segment plays an important role here. Hoteliers need to be able to understand
enough of the decision process of tourists (Cohen, Prayag & Moital, 2014)
in order to be able to offer tailored solutions to this demanding segment of
the market. Tran (2015) gives an overview of research done on demand in the
luxury segment in different countries, but Thailand is missing in his overview.
One of the goals of the present research is therefore to fill a gap in the
understanding of expectations of tourists visiting four- and five-star hotels
in Thailand by exploring what kind of amenities they expect. Consumers always
make a trade-off between nicer amenities and higher prices. Therefore, this
paper also researches the sensitivity of the consumer to hotel prices in
Thailand. This has been recognized as very important in other settings as well
(Lu et al., 2015). This research contributes to an in-depth understanding of
these issues by using van Westendorp’s (1976) Price Sensitivity Model.
This research was carried out by analyzing in a
quantitative way responses to an online survey in Thai and English among 137
individual visitors in a convenience sample to four and five-star hotels in
Thailand. All obtained results are highly significant, showing that the sample
size was adequate. Respondents were mostly leisure travelers, not part of
groups and booked their hotels individually.
Further
it is researched what role prices and some other factors play in the
willingness to recommend a particular property.
LITERATURE REVIEW AND SURVEY DESIGN
This
research focuses on three related objectives:
• Factors
influencing consumer hotel choice, especially amenities, as part of the
decision process of potential guests.
• Traveler’s
acceptable price range of 4- and 5- star hotels in Thailand, and
• An
indication about hotel revenue.
Factors Influencing Consumer Hotel Choice
According
to Ogüt & Tas (2012), star ratings are able to provide an advantage of
differentiation to hoteliers as ratings offer an indication of intrinsic value.
In Thailand, the Thailand Standard Hotel Foundation is the only organization
that can decide which rating is assigned to each individual hotel or resort.
Their Thailand Standard Hotel Directory (2011) describes characteristics of
four- and five-star hotels.
According
to Chen & Jones (2011), guests use a two-stage hotel selection progression
deciding to book an accommodation online. They first establish a consideration
set, followed by a smaller choice set. Different aspects and features of the
hotel or resort and the scope of the hotel market in the considered area itself
affect these sets. However, researchers still do not agree on which factors are
paramount in influencing consumer hotel selection and price ranges. It might be
even doubtful if there is a common set of factors that is valid for most
travelers. Hotel choices might also be influenced by gender, age, income and
even purpose (e.g. leisure, business, etc.). Studies from Lewis (1984); Knutson
(1988); Ananth et al. (1992); Hart (1993); McCleary, Weaver & Lan (1994)
and Callan & Bowman (2000) identified attributes that can affect hotel
selection and decision making. Reasonable cost or price, location, security,
star ranking, service, hotel amenities and status were considered as main
factors in selecting a hotel accommodation. Lewis (1984) determined attributes
of three different areas: hotel selection, hotel stay, and perceptions. As a
result, the study came up with 66 attributes, reduced to 17 characteristics to
make the analysis more manageable. Ananth et al. (1992) evaluated 57 hotel
variables that guests might consider when selecting a hotel, including such
factors as good value for money, a swimming pool, breakfast and so forth.
Callan & Bowman (2000) rated 38 factors on their importance when choosing a
hotel accommodation. According research by the Global Market Metrix Hospitality
Index (MMHI) in 2013, location is one of the top factors when deciding to book
a hotel accommodation, followed by price. Given those different results, it is
important to supplement this type of research with findings from a different
country like Thailand.
Following
the quoted existing scientific literature, the survey contained a large number
of questions with obvious face validity on features that were discussed above
as to influence booking decisions. Questions were asked about age, income,
education, previous experiences with 4 and 5 star hotels, facilities, services,
amenities, location, hedonistic aspects, unique selling points, loyalty and
green programs, competitors, online reviews about quality, if the hotel was
associated with a chain, prepayment against no prepayment, and free cancelation
options. The complete survey is given in Bauer (2017).
Somewhat
opposite to the usual approach, this work posits that hotel guests have
realistic expectations about amenities that are determined by the price that
they want to pay and minimum standards, and not, reversely, that desired
amenities determine the price that one is willing to pay. Therefore, the survey
first asks for an acceptable price range for the room rate for four and five
star hotels in low and high season (see the next section on van Westendorp’s
PSM). Given that price range, it asks what are important “must-have” amenities
that one expects, to get, considering the price one is willing and expecting to
pay. In that way, this work links expectations about costs in a hotel category
and desiderata for amenities per hotel category.
The van Westendorp Price Sensitivity Model
Many
factors influence price in the hotel business and value for money is closely
linked to perceived quality, expectations and customer satisfaction. A guest
will agree to a specific price when the perceived value of the product or
service matches the price tag of this product or service. Reversely, the price
one is willing to pay sets the expectations about what one can expect for that
price. As guests’ perceptions differ tremendously, also depending on their
background, hoteliers have to evaluate carefully when setting the price for a
hotel accommodation. (Plessis & Saayman, 2011).
Various
firms still base changes in their pricing not on predictions or expectations of
the consequences of a changed price, but on customer reaction after the change
occurred. Product-led pricing strategy instead of a customer-led pricing
strategy is still common. This can make the price level too high as well as too
low for the services offered. Different strategies exist to mitigate this problem,
like demand-based pricing, pricing according to distribution strategy (sales
channels), dynamic pricing (aiming to have a profit at all time by varying the
prices on a short-term scale), open pricing (flexible pricing) and static
pricing (fixed price year around). There
seems to be a trend to shift pricing strategies to customer-led pricing. This
article discusses one way the view of customers can be analyzed.
Price
ranges were first explored by Gabor & Granger (1966). In the consumer’s
view, a price is both an indicator of cost and an indicator of quality. Gabor
& Granger’s work considered upper and lower limits to a possible purchase.
Any price that exceeded the upper price limit would be labeled as too expensive
and a price below the low limit would be a signal of too low quality. van Westendorp
(1976) extended this in his Price Sensitivity Model (PSM) (not to be confused
with price elasticity). To establish price sensitivity, potential guests were
being asked the following questions in the survey. The following PSM questions
were adjusted for the hotel industry with conjoint questions for a yield
analysis, but are following the validated questions from van Westendorp’s work:
1) (Too cheap price): At what price on the
scale do you consider a 4 and 5 star accommodation too cheap, so cheap that you
would question the quality?
2) (Cheap, Good Value): At what price on
the scale do you consider a 4- and 5-star accommodation a good value?
• Conjoint
Question: How likely would you book a room at this good-value price?
3) (Expensive): At what price on the scale
do you consider a 4- and 5-star accommodation to be getting expensive, but you
would still consider booking it?
• Conjoint
Question: How likely would you book a room at this more expensive but still for
you affordable price?
4) (Too expensive): At what price on the
scale do you consider a 4- and 5-star accommodation too cheap, so cheap that
you would question the quality?
The
van Westendorp’s price sensitivity “price map” shows on the x-axis the range of
acceptable prices for a product. The y-axis represents the cumulative
percentage of respondents. By construction, the “too cheap” line is to the left
of the “cheap” line and the “too expensive” line is to the right of the
“expensive” line. Any prices that are lower or higher than the “too cheap” and
“too expensive” line will be not considered by the indicated percentage of
consumers. The Optimal Price Point (OPP) is the point where the same number of
consumers considers the product as too cheap as too expensive. A few
researchers, such as Grigsby (2015), argue that the optimal price point (OPP)
might be debatable, however the general idea is that an equal amount of
respondents believe that a product is either “Too cheap” or “Too expensive”,
therefore it is the point where purchase resistance is the lowest, hence the
most optimal yield. In general, its location is not very far from the
Indifference price point, the point where an equal number of people find the
product cheap and expensive. Note that costs for the company, for instance
advertising to justify a higher price, can be variable and dependent on the
sales price. Therefore, the OPP is not automatically also the point of the
highest profit. At the Point of Marginal Cheapness, the same number of people
perceives the price as too cheap as expensive. At the point of Marginal
Expensiveness, the same number of people considers the price too expensive and
cheap. The Range of Acceptable prices is between the Point of Marginal
Cheapness and Point of Marginal Expensiveness (roughly 1200 to 1900 in Figure
1). Outside this range there is not an optimal amount of demand. If the price
is lower than the lowest price in the Acceptable Price Range, revenue is lost.
If the price is higher than the highest price in the Acceptable Price Range,
sales are lost.
Amenities and Prices as Factors Influencing Choices
According
to Ananth et al. (1992), the importance of price in the lodging industry is not
significantly different amongst diverse age groups. However, it is generally
assumed that younger travelers are more price sensitive because of lower
disposable incomes. Guillet, Guo & Law (2015) classified generation Y
travelers (18 to 35 years old) as price sensitive. Petrick (2005) (as cited in
Öğüt & Tas (2012), stated that less (high) price sensitive consumers
generally select high (low) star hotel accommodation. In addition, there are
also some hotel features or amenities that might be more important to younger
hotel guests than to more mature travelers, like sports accommodations.
McCleary, Weaver & Lan (1994) found that women who travel for business,
take hotel safety measures, low price, and more personalized services more into
account than men. Furthermore, women traveling for business attach presumably
more value to their overall accommodation booking when necessary amenities
(e.g. hair dryers, iron and ironing board, room service and bathrobes) are
offered. To explore some of those issues, a large number of questions were
included in the questionnaire.
METHODOLOGY
The
survey was carried out online among a convenience sample (a random sample is
impossible to obtain) of frequent Thai and foreign visitors to 4 and 5 star
hotels obtained by seeding a number of guests to such hotels the first
researcher knew. Respondents were requested to forward the link to qualifying
acquaintances in their network by snowballing (chain referral sampling) via
email and social media like Facebook and LinkedIn. A filter question assured
that only visitors in the last three years to 4 and 5 star hotels participated.
The full survey and all technical and statistical details are available in
Bauer (2017).
Respondents
were presented with vignettes describing 4- and 5-star accommodations. After
this, respondents were asked structured questions about demographics, purpose
of stay in the last visited 4- or 5-star hotel accommodation, channel of
booking and their behavioral (intention of returning) and affective (willingness
to recommend to friends and family) loyalty to a particular hotel provider.
Questions also probed acceptable room rates for four- and five-star hotels and
the respondents’ willingness to book the hotel.
The
online questionnaire was designed and distributed in a Thai and English version
electronically via the Qualtrics system. The complete questionnaire is in Bauer
(2017). As an incentive, respondents could opt-in to participate in a raffle
and have a chance of winning a restaurant voucher. The IRB board of Webster
University in St. Louis, MO, USA approved the research. The survey data was
collected over a two months’ period, starting at the beginning of November 2016
and ending mid-January 2017. At the end, 137 respondents completed the survey.
Data analysis was done with SPSS.
RESULTS
There
were 70 female respondents (51%) and 67 male respondents (49%) (Total N=137) in
our sample. 65 respondents (55%) were between 18 and 35 years old, “younger
travelers”, “Generation Y” and 62 (45%) were 36 or older, “mature travelers”,
“Generation X”. Of the mature respondents only 7 (5.1%) were 56 to 65 years old
and none were older. Many respondents were from Thailand (N=72, 52%). The
second largest group was from Europe (28%). British and French nationals formed
each 22% of the group of Europeans and Germans 16%. Up to a certain degree,
this matches the known distribution of visitors to Thailand, justifying the
convenience sample. International visitors to Thailand are mostly from East-Asia,
but our sample contains Thai domestic visitors instead Chinese international
visitors. The second large group of visitors to Thailand comes from Europe,
just like in this sample (Bauer, 2017). Of the respondents, only 6 (4%, N=137)
had not completed college. 67 (48.9%) had as highest education a bachelor
degree, 57 (41.6%) a Master’s degree, 4 (2.9%) a Doctor’s degree and the rest,
3 (2.2%) a vocational or professional degree. 95% of the respondents reported
that their income came from salary. Figure 2 (N=134) indicates the frequency
distribution of income. The respondents are clearly affluent. For privacy
reasons it was not asked if respondents had paid for themselves.
The relative importance of factors that could influence hotel choice and final decision-making process are shown in Figures 3 and 4. The error bar indicates the statistical uncertainty; it is impossible to estimate the systematic uncertainty. The image of the hotel scores considerably higher in the relative ranking of importance of amenities in five star hotels than in four-star hotels. It is probably a fair conclusion that survey participants want to appeal to other people when staying in a five-star hotel and impress them.
Online reviews from websites like Booking.com, Agoda
or Pantip are slightly higher rated than TripAdvisor reviews on the
respondent’s importance scale. Maybe participants found it simpler to read
reviews and simultaneously book a hotel room at these websites. Another reason
might be that 72 respondents were Thai citizens and Pantip.com, a Thai website
similar to TripAdvisor, is a common destination for Thais for hotel (and other)
reviews.
In
this sample “green”, environmentally friendly programs ended dead last in
importance for booking a luxury 4 or 5 star hotel. This does not mean that it
is not important for hotels to adopt sustainable practices. For instance, there
were no questions to probe to what degree sustainable practices during the stay
influenced the satisfaction after the stay.
In
some respects, there were significant differences between generation X (mature)
and generation Y (younger) travelers. Generation X had stayed on average
somewhat more than five times in a four-star hotel and on average around five
times in a five-star hotel in the last three years. In the last three years,
generation Y has stayed less, between three and four times, in a four-star
hotel and around three times, on average, in a five-star hotel. This might
reflect the lower disposable income of the generation X travelers, although
average number of stays was skewed by the 20% of the respondents who had
visited a four-star hotel more than 10 times in the last three years and the
15% who had visited a five-star hotel more than 10 times. The relative large
number of very frequent visitors might be a target selection effect. However,
there is no reason to assume that priorities are different among this group.
Both
genders gave similar scores to the question about ‘too cheap’ from the van Westendorp
Price Sensitivity Model for a 4- and 5-star accommodation. However, female
respondents indicated slightly higher price ranges than male participants
regarding the ‘good value’, ‘expensive but still affordable’ and ‘too
expensive’ value of a 4- and 5-star accommodation in low and high season in
Thailand. This is in disagreement with the research by McCleary, Weaver &
Lan (1994), who stated that women take into account low prices when booking a
hotel accommodation (see the literature review). A possible explanation is the
observation from the literature review that women care more about personalized
services and various amenities. Women considered the following hotel factors
significantly (via a T-test) of higher importance when booking a hotel
accommodation. As General Items: Online photos and videos and green programs.
For Amenities: special pillows, microwave, electric kettle, tea and coffee;
hairdryer, toothbrush; shower caps, combs, and additionally for a five-star
hotel, bathrobe and slippers. As Services: Concierge, Valet and 24 h Front Desk
Service, and additionally for a five-star hotel: 24 h Room Service. It is
therefore plausible that women’s upper part of the price range is higher than
men’s is, as female respondents seem to expect more value. Interestingly, women
also find green programs more important than men do, although this still scores
low.
A factor analysis (principal component analysis) was done for each of the four variables coming from the van Westendorp questions (“too cheap”, “good value”, “getting expensive” and “too expensive”) (Table 1). It was found that only one factor per question was extracted. Those gave a good representation of the variability in the questions over low and high season and four and five star hotels. Therefore, each of the four van Westendorp variables was combined for low and high season and 4 and 5 star hotels (Bauer, 2017) for use in regression equations. After this, a regression analysis was performed. Forward additions of independent variables were carried out in all cases.
The following tables (Table 2) show some of the results:
Table 2 shows the regression analysis for dependent
“Likelihood to stay in a good value hotel”. There are statistically significant
influences from income, ‘good value’ price and the likelihood to ‘search for a
better option’. An explanation is that respondents who answer that they are
likely to stay in such good value lodging are price conscious.
The likelihood to stay in ‘getting expensive' option (Table 3) was influenced by impressing other people, loyalty program, beach club, bathrobe and slippers. It is an interesting finding, relevant for marketing that respondents are trying to impress their friends and other people with their hotel choice. The number of stays in 5 star hotels was influenced by income, likelihood to ‘search for a better option’ and ‘too cheap’ price (Table 4). The two independent variables seem contradictory but consistent with the signaling of affluence. As five star hotels are expensive, price starts to be an influencing factor for 5 star hotels as salary is influencing their acceptable price range and respondents are likely to book the accommodation with best available price in this star category. On the other hand, it is important that the hotel is not too cheap, because then it loses its signaling function. There is a trade-off between the desire to impress people and the reality of a finite budget.
A standard way to gauge the emotional attachment to a
service or brand (“affective loyalty”) is to ask if the respondent is willing
to recommend the service or brand to other people who are important to the
respondent. Table 5 confirms that loyalty programs indeed influence affective
loyalty and make visitors more attached, but a perception of value for money
also increases the likelihood of recommending. These results complement the
factors derived from marketing practices given in Narteh et al. (2013). The analysis of the survey questions relating to van Westendorp’s
Price Sensitivity Model is given in Figures 5 and 6. The x-axis is the price
for one night in Thai baht. The acceptable price range outcomes found here are
in line with the data recorded from Thornton Thailand Survey (2016) that room
rates at 5-star properties were 3,642 baht (≈ $106) on average and at 4-star
hotels 2,468 baht (≈ $72) on average. This research confirms that regular
visitors to luxury hotels have realistic expectations about price levels and
are willing to pay for increased quality or a higher star rating. Other survey questions asked about the importance in 4
and 5-star hotels for amenities, services and facilities. Some important
factors for respondents’ hotel choice were personal care items, in-room WI-FI, 24
h front desk service, swimming pools and dining options. Some low importance
hotel features included microwave, ice bucket with ice, valet service and a
business center. This data and many other results are reported in (Bauer,
2017). This research also found that there is a significant difference in the
frequency of stay in 4 and 5 star hotels and the importance of hotel features
between generation X and Y travelers, but no difference in price ranges.
DISCUSSION AND RECOMMENDATIONS
This
research provides a detailed baseline about expectations of visitors to four
and five star hotels in Thailand. This research found that generation Y and
generation X, and male and female guests, differ in their ideas of which hotel
features are the most desirable, pointing to a need for specialization. More
details about this aspect are in (Bauer, 2017).
Some
other recommendations that follow from this research are: Hoteliers need to be
cautious before following the trend to offer lower rates. This can lead to a
“Red Queen’s race”, a race to the bottom. Hoteliers of high-quality properties
have to find a strategy that is not only dependent on the lower-spending market
segment, but attracts different and higher quality tourists. Therefore, it is
useful to measure the overall consumer acceptable price ranges for these star
categories as was done in this work. This research showed that 4-star hotels
could set their price above 50 USD (1,800 baht) in low season and even consider
setting their price above 85 USD (3,000 baht) in high season for leisure
travelers. Moreover, 5-star properties can specify the room rate above 100 USD
(3,500 baht) in low season and above 140 USD (5,000 baht) in high season. This
research has shown that hoteliers should be careful when driving room rates
down, because customers might see the offered price as too cheap, and hence
suspect that the offering is a low-quality product or service. Several parts of
the research confirm the signal function that five star hotels have to message
affluence and ability to afford opulence to members of the social class of the
traveler, friends and family.
Surveys
like this one give tools to satisfy the customer by listening to their wishes
and opinions and make it possible to establish the right price point and offer
the right amenities and services, for the right customer at the right time.
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