Guests to hotels: Show me the money

PENN STATE (US) — Cold, hard cash does the job appeasing disgruntled hotel guests displaced because of overbooking. Vouchers for free stays? Not so much.

“A lot of people in the hotel industry ask the question: ‘What do I do to compensate customers who have been turned away because of overbooking?’ ” says Breffni Noone, assistant professor of hospitality management at Penn State. “The results suggest cash-based overcompensation works best.”

Hotels and airlines typically try to overbook stays and flights because customers may be no-shows, costing businesses revenue that can’t be recovered.

“Hotels and airlines intentionally overbook because they will never get the opportunity back again,” Noone says. “It’s not like a retail store that can pull products off of a shelf and put them back on later for resale—when people don’t show up, you don’t have a chance to fill those rooms at a hotel or seats on an airplane again.”

For the study, published online in the Journal of Hospitality and Tourism Research, Noone measured how satisfied 212 potential hotel customers were with the industry standard compensation—a free night’s stay at a comparable hotel, transportation and a telephone call—when it is combined with additional compensation in the form of either a voucher or a cash-based award.

Vouchers are coupons that typically must be redeemed at the hotel or hotel chain. Also tested was customer satisfaction at three levels of overcompensation for a $200 a night hotel stay—50 percent or $100, 100 percent or $200, and 200 percent or $400.

Cash-based overcompensation leads to higher satisfaction ratings than industry-standard compensation or voucher-based overcompensation. People were most satisfied with the 200 percent cash bonus, although the satisfaction level was not statistically significantly higher than satisfaction with the 100 percent cash bonus.

Satisfaction with cash bonuses does not increase linearly as the cash amount increases, but appears to level off at a certain point, indicatings that an optimal level of overcompensation for booking errors may exist, Noone says.

“The lesson seems to be that, at some point, throwing more money at the situation does not necessarily produce better results. Once you hit an optimal level, there’s no reason to go farther.”

More news from Penn State: