May 23, 2002 — In a May 23 Wall Street Journal article called “Desperate to Fill Their Beds, Hotels Offer Free Rooms,” Ron Lieber reports that three of the largest hotel chains in United States are giving away free rooms in an attempt to entice business users back to their hotels after a fall-off in travel following September 11. Rohit Verma, Associate Professor of Operations Management at the David Eccles School of Business at the University of Utah says such incentives won’t be effective.

“Although such offers can be lucrative, they most likely will not impact hotels’ occupancy and profitability in the long run or even in the short run,” Verma said.

Verma’s recent research on the topic of choice drivers for hotel customers looks at the ways in which both business and leisure travelers choose hotels. The results of this recent large national research study titled “Defining New Value Drivers for Hotel Customers” directed by Rohit Verma (Associate Professor, David Eccles School of Business, University of Utah) is sponsored by Hospitality Sales and Marketing Association International Foundation (http://www.hsmai.org/Resources/research.cfm). The study showed that only 2.6% of customers choose hotels based on “loyalty programs” (such as free rooms) and only 3.3% because of special marketing promotions during their recent trip. The top-reasons for picking hotels for business travels were location (28%), room rate (15%), and previous experience (11.6%) (see Exhibit 1).

In addition to reporting the reasons for selecting a hotel during their past stays, the respondents participated in a sophisticated choice experiment in which each individual has to choose a hotel “package” from a set of alternatives each varying in terms of the offerings components such as price, hotel type/location, loyalty programs, hotel amenities, customization options, office/technology & eating options, etc. (The theoretical foundations of the choice modeling approach used in this research are partly developed by Professor Dan McFadden, Winner of Nobel Prize in Economics, 2000).

Summarized choice analysis results presented in Exhibit 2 show that business travelers assign relatively higher weighs to price, hotel type/location, and amenities then loyalty program options when choosing a hotel. Leisure travels assign even lower weights to loyalty program options with respect to the other hotel value drivers described above.

Please contact HSMAI Foundation or Rohit Verma for additional details including an analysis of business and leisure travelers’ willingness to pay “extra” for enhanced hotel security measures.

Exhibit 1: Reasons for Choosing a Hotel during the Most Recent Trip

Reason Leisure Travelers Business Travelers
Hotel location 26.3% 27.7%
Nightly Room rate 15.1% 15.1%
Value for the price 13.5% 9.5%
Previous experience 9.6% 11.6%
Reputation of hotel/chain 8.8% 7.7%
Recommendation of friends or associates 5.4% 4.3%
Recommendation of travel agents 1.1% 1.1%
Frequent hotel stay or airline points 1% 2.6%
Special promotion/marketing campaign 4.1% 3.3%
In-room/hotel business services (e.g. printer, fax machine, etc) 0.7% 1.9%
In-room/hotel amenities (e.g. toiletries, room décor, coffee maker, mini-bar, etc). 4.9% 5.2%
Ability to make reservations via Internet 3.4% 2.6%
Other misc. reasons 6% 7.6%