Does the price of a hotel stay increase a guest’s satisfaction or does it have a negative impact on guest satisfaction? Price can be seen as a signal on the quality of a service, such as a guest-stay, or as an indicator of sacrifice. There appears to be a non-linear relationship between hotel price, measured by RevPAR and guest satisfaction at the industry-wide level as illustrated in our graph below. This gives some credence to the two-sign effect that price plays on guest satisfaction, positive (quality) and negative (sacrifice).
We acknowledge that most hotel brands track, compare and benchmark guest satisfaction across their portfolio of properties. They clearly understand the nexus between highly satisfied guests and their propensity to return to a branded hotel compared to guests who were dissatisfied with their stay. But can they assume that improving customer satisfaction and financial performance go together? For an interesting article on the subject, please read “The High Price of Customer Satisfaction” in the MIT Sloan Management Review.
Our brief post draws on some top-level data from a larger assignment we recently completed on value-based pricing. See our recent post, “Value-based Pricing for the US Lodging Industry“. Our results are likely to shed some light on some managerial implications for pricing policies on the lodging industry.
For the purposes of our analysis we used data from J.D. Power’s 2018 North America Hotel Guest Satisfaction Index (NAGSI) Study as well as hotel performance metrics including RevPAR from 10-K filings. The NAGSI study measures overall guest satisfaction across eight hotel segments: luxury, upper upscale, upscale, upper midscale, midscale, economy, upper extended stay, and extended stay. Seven key factors are examined in each segment to determine overall satisfaction: reservation, check-in/check-out, guest room, food & beverage, hotel services, hotel facilities, and cost & fees. The definition for each factor is included in the footnote along with the hotel brands that ranked highest in guest satisfaction in their respective segments in 2017 and 2018.
A summary factor, overall satisfaction is also included. This score is based on how guests rate their overall satisfaction with the hotel. We used this factor as the dependent variable to identify the statistically significant predicter variables among the seven key factors used in the survey. Of the seven factors listed, only three, check-in/check-out, guest room and cost & fees were statistically significant for the 70 hotel brands in the study. For the twenty-two midscale/economy brands, which included brands such as Super 8, Days Inn and Quality, the factors were identical to the total sample: check-in/check-out, guest rooms and cost & fees.
For the twenty-six upper/upper midscale brands, which included brands such as Hilton Garden Inn, Holiday Inn Express and Comfort Inn, the factors included check-in/check-out, food & beverage and hotel facilities. Surprisingly, only two factors appeared to be statistically significant for the luxury/upper upscale guests, which included brands such as W Hotels, Marriott Hotels & Suites and Hilton Hotels & Resorts; check-in/check-out and cost & fees.
We were not able to collect 2018 RevPAR for twenty-three brands so the accompanying graph provides the distribution of the forty-seven hotel brands in RevPAR vs NAGSI space. It’s clear the relationship between RevPAR and HGSIS is non-linear. The curvilinear nature of the relationship raises questions about the elasticity of guest satisfaction across the breadth of the lodging industry.
The Location of Hotel Brands in Relation to RevPAR and Hotel Guest Satisfaction Index Score in 2018
The following graphs divide the total distribution of hotel brands into three groups; luxury and upper upscale, upscale and upper midscale and upscale and economy.
The Location of Luxury and Upper Upscale Hotel Brands in Relation to RevPAR and Hotel Guest Satisfaction Index Score in 2018
The average NAGSI for luxury hotel brands is 879 and for the upper upscale hotels it is 854. Because the bivariate scatter plot indicated a linear relationship between overall satisfaction and RevPAR, a linear
regression was performed. The overall model was significant
(R-Squared = 0.47, t-Statistic 3.42 p < .01).
The Location of Upscale and Upper Midscale Hotel Brands in Relation to RevPAR and Hotel Guest Satisfaction Index Score in 2018
The average HGSIS for the upscale hotel brands is 852 and for the upper midscale hotels it is 847. The bivariate scatter plot indicated a linear relationship between overall satisfaction and RevPAR, a linear
regression was performed. The overall model was significant
(R-Squared = 0.50, t-Statistic 3.92 p < .01).
The Location of Midscale and Economy Hotel Brands in Relation to RevPAR and Hotel Guest Satisfaction Index Score in 2018
The average NAGSI for the midscale hotel brands is 812 and for the economy brands it is 748. The bivariate scatter plot indicated a linear relationship between overall satisfaction and RevPAR, a linear
regression was performed. The overall model was significant
(R-Squared = 0.73, t-Statistic 6.08 p < .01).
Despite a number of major studies on the relationship between customer satisfaction and price in the lodging industry, the role of price continues to vex the minds of marketers and revenue managers.
The 2018 North America Hotel Guest Satisfaction Index Study analyzes guest responses to more than 150 questions regarding their overall experiences and includes 70 officially ranked brands in eight market segments. This year’s study is based on responses from approximately 55,000 hotel guests who stayed at a hotel between May 2017 and May 2018. The study was fielded between June 2017 and May 2018. The seven key factors, together with all encompassing “overall satisfaction” factor are defined below.
| Overall Satisfaction | This score is based on how guests rate their overall satisfaction with the hotel. |
| Reservation | This score is based on how guests rate the phone or online reservation process, including getting through to a representative, courtesy of reservation staff, ease of booking, availability of booking options/packages, knowledge of staff, ease of navigation , appearance /design of website, and usefulness of information on the website. |
| CheckIn/Check-Out | This score is based on how guests rate the check-in/check-out process, including speed of check in/out, clarity of billing, and knowledge/courtesy/responsiveness of staff. |
| Guest Room | This score is based on how guests rate the guest room on cleanliness, quietness, amenities, quality of bathroom, bed comfort, and smell/décor. |
| Food & Beverage | This score is based on how guests rate the menu choices, quality of food, courtesy of staff, speed of service, and ambiance. |
| Hotel Services | This score is based on how guests rate the business center, receation/spa facilities, internet, laundry, valet, hotel transportation and concierge services. |
| Hotel Facilities | This score is based on how guests rate the parking, hotel exterior/interior, hotel maintenance and security/safety. |
| Cost & Fees | This score is based on how guests rate the price paid for the room, food and beverage, parking, internet connectivity, amenities and hotel services. |
Rankings for the 2017 & 2018 North America Hotel Guest Satisfaction Index (NAGSI) Study
| 2017 | 2018 | |
| Luxury | The Ritz-Carlton & JW Marriott | The Ritz-Carlton |
| Upper Upscale | Hyatt | Kimpton Hotels & Restaurants |
| Upscale | Hilton Garden Inn | Hilton Garden Inn |
| Upper Midscale | Drury Hotels | Drury Hotels |
| Midscale | Wingate by Wyndham | Wingate by Wyndham |
| Economy | Americas Best Value Inn | Microtel Inn & Suites by Wyndham |
| Upper Extended Stay | Staybridge Suites | Staybridge Suites |
| Extended Stay | Candlewood Suites | Home2 Suites by Hilton |