Rate Fences in Hotel Revenue Management and Their Applications to Chinese Leisure Travelers: A Fractional Factorial Design Approach

In the first study of its kind, a conjoint analysis of 530 Chinese leisure travelers visiting Hong Kong analyzed the relative value that these travelers assigned to a variety of hotel rate fences or rate restrictions. Not surprisingly, the attributes with the highest utility scores were also the least restrictive. That is, the respondents preferred the lowest price (947 Hong Kong dollars [HKD]), the least restrictive advance reservation or purchase requirement (seven days in advance), and an advance reservation requirement that included a full refund and unlimited changes without any restrictions. Of all the rate fences presented, price and refundability were consistently the most valuable to these travelers. The implication for hotel operators is that Chinese travelers will accept hotel rate restrictions, but they must be carefully constructed and avoid stringent restrictions, particularly advance purchase and refundability, unless those restrictions are offset by favorable price.