There’s a lot of buzz around “unbundling” - from cable packages to financial services - driven by the demands of the notoriously budget-conscious millennials.
NB This is a guest article by Gautam Lulla, president of Travel Tripper.
In fact, one-third of millennials say they would stand on an airplane for a discount.
Indeed, the airline industry has proven that the strategy of unbundling can be hugely successful. Ancillary revenue for airlines almost topped $50 billion in 2014, the result of fees now collected on everything from baggage to extra legroom.
Following the success of unbundling, airlines such as American and Lufthansa have now begun to “re-bundle” their fees into “fare families.” These packages come with a range of benefits and restrictions such as priority boarding, different cancellation policies and opportunities to alter the itinerary.
Which begs the question, would an “unbundling” model work for hotels?
Younger, price-driven travelers are the obvious market for this, but there are some important considerations.
Customer satisfaction
Airlines have proven “unbundling” is financially workable. But is it customer-friendly? Research suggests not.
An empirical study conducted by universities in the US, Germany and New Zealand assessed the impact ancillary fees have on consumer attitudes.
“Airline fees may lead to anger, retaliatory behaviour and avoidance tactics,” the study concluded.
Passengers also felt aggrieved at paying for add-ons they might have expected to be included in the price.
Given that hotels have significantly more extras than airlines, this response could be magnified if they were to embrace unbundling to the same extent. It’s clear that being upfront about what consumers are getting for their money would be vital in maintaining trust and earning repeat business.
But the other issue to consider when presenting customers with so many options is its impact on decision-making.
The stress factor
Booking a room can be hugely stressful when too many options are presented at once. Having to decide between a variety of add-ons can easily lead customers to abandon a booking.
One possible solution is to stagger add-ons throughout the booking process to reduce the decision-making load.
Alternatively, hotels could suggest add-on services or experiences via email a few weeks before guests arrive, cross-selling at a time when vacation excitement is peaking.
But there’s another issue related to the proliferation of choice.
Research has shown it can lead people to second-guess and regret their decisions. Arguably, unbundling the extensive menu of amenities at a property is a recipe for this kind of buyer’s remorse.
But it hasn’t stopped Tune Hotels from offering its own “pay as you use” system. Currently, guests are required to pay for extras such as TV, wifi, even towels and toiletries. Other hotels have started to implement additional fees for services such as holding your bags before a flight, or checking in early or checking out later.
The question is, how many extras might hotels eventually try monetizing?
On the one hand, the upsell opportunities are vast, and impulse purchases are highly likely when travelers are on vacation. And on the other, cost-conscious travelers will appreciate the option to save money where they can.
But is there a fine line between customers’ perceptions of value and price gouging.
The future of hotel unbundling
A system similar to the airlines’ “fare families” option is a viable solution for the hotel industry. Fixed packages would eliminate the frustratingly granular task of having to pick through every conceivable amenity.
Hotels will also need to rethink customer service policies so that any issues which arise from the “pay as you go" approach can be quickly resolved.
But there’s an inevitable trade-off for those that go down this unbundling route. Even when being totally transparent, it’s hard to shake the perception of inherent miserliness that comes with asking guests to pay for "extras "such as towels in the room.
So, while the financial viability of unbundling is working for chains such as Tune Hotels, the impact on brand perception and long-term customer satisfaction for others taking this approach remains to be seen.
Having said all that, the appetite of the millennials to economize means that, eventually, the hospitality industry will have to consider unbundling and the best way to approach it.
NB This is a guest article by Gautam Lulla, president for Travel Tripper
NB2Young people image by Shutterstock.