Hotels Follow Airlines

My friend Ravishankar wrote to me:

Thought you’d find this interesting from the WSJ (Hoteliers Start to Mimic Airlines—Uh-Oh). Sad that the airlines model of nickel-and-diming the customer is now adopted by major hotel chains. Even worse that industry consultants who should argue for customer experience and value are saying in essence “nickel and dime the traveller to maximize revenue and forget about customer satisfaction”.

The article goes on to say: The “big six” hospitality mega-chains—IHG, Hilton, Marriott, Choice, Wyndham and Hyatt—have gobbled up 60% of all U.S. hotel rooms. Now they are adding fees that resemble the baggage and ancillary charges assessed by the “big four” airlines.

All this to increase revenues.

Our studies showed that most high end Customers were happy to pay Rs 9600 with free internet versus Rs 9000 plus an add-on for internet. It is a matter of value (what you get and what you pay) and Customers are happy to pay for higher value they perceive when they get with free internet (it is real need today). Same goes for free breakfast.

On the other hand in budget hotels with stripped down prices, add-ons were considered ok by budget travellers. Thus, one pays Rs 3000 for a room vs. Rs 3500 even though the lower fee has no internet and the higher fee does. This is similar to baggage fees in discount airlines.

This segment of customer buys on the lower price and they perceive they get higher value with the Rs 3000 room even though with no internet.

Revenue increases will follow value. Actually revenue increase will follow differential value. That means if all hotels follow the policy of add ons, then the Customer will have no choice but to seek value on price or other benefits that differentiate one hotel from another.

I think we consumers understand that when we pay a high price, we expect more. And we expect less when we pay less, and are then ok with add-ons.

Who are waiting in the wings? Amazon, Google, Microsoft, Banks, etc. etc. Look at Microsoft. In MS Office365 they give you Outlook, but an annual fee is charged. In MS2016 there is a higher fee with a ‘lifetime’ ownership (whatever lifetime means. What happens when you change to a new computer?) But this gives you no Outlook. You pay extra for Outlook. What choice do you have? Buy one or the other? In India they have found a third way, piracy.

All the biggies have managed to get us into their net, and now they are squeezing the Customer! Vive la Company!

Do you think companies should ask for expected add-ons when you are paying high prices? Share your thoughts and experiences.



Gautam Mahajan,
President, Customer Value Foundation and Inter-Link India

Founder editor, Journal of Creating Value
K-185 Sarai Jullena, New Delhi 110025
+91 98100 60368, 011-26831226

Twitter @ValueCreationJ

Customer Value Foundation (CVF) helps companies to Create Value and profit by Creating Value for the Customers, employee and for each person working with the companies.

Total Customer Value Management (Total CVM) transforms the entire company to focus on Creating Value for the Customer by aligning each person’s role in Creating Customer Value and getting shareholder wealth and Value.


Explore posts in the same categories: Business & Management

2 Comments on “Hotels Follow Airlines”

  1. What bothers me most with the airlines is the intentional lack of visibility. Hotels follow the airlines, even though they are less extreme in their policies of dynamic pricing and lack of visibility.
    I can easily get used to pay extra for Internet. What makes it reduced value is the hassle to define a-priori how long I’m going to use the Internet.
    The source of the problem lies in the basic thinking behind Yield Management, a pseudo optimization model for pricing flights, which most hotels try to imitate. Yield Management radiates greediness and this kind of thinking led to charging many add-ons. The idea is NOT to let the customer make the best choice, but for the airline, or hotel, to capitalize on the fact that the customers have not properly prepared themselves to the situation and now they need to pay the price.

  2. customerfaithful Says:

    For me, this comes back to bundling and unbundling features and benefits of a value proposition. As long as there is choice for the customer, I don’t see this is ‘nickel-and-diming’ them.
    The retail industry is a good model – you may be interested to read my blog on this.

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