Does Willingness to Pay for Rate Conditions Depend on the Booking Window? A Novel Time-Dependent Conjoint Analysis Approach

Abstract

This research note draws attention to a novel choice-based conjoint (CBC) model by which guests’ preferences toward hotel room rate conditions can be predicted as a function of time. Through the model, the notion is explored whether willingness to pay for rate conditions (without penalty) depends on the size of the booking window. The modified choice model includes time as an additional “attribute.” This attribute does not present a feature of the choice propositions, but instead is associated with the choice context. An empirical study was carried out to demonstrate the proposed model using three common booking conditions (i.e., free cancelation, free date change, pay on departure). The results show significant and positive time-dependent mean components for cancelation and date change conditions. Despite a limited sample size, all significant effects have expected directions (no parameter reversals) providing evidence of the robustness of the model. The results indicate that the ability to cancel or change a booking is preferred more when the booking window is bigger. Accordingly, as the time period between the advanced purchase and intended date of arrival increases, the willingness to pay for rate conditions also increases. This finding has major practical implications for price and revenue optimization. Limitations of the proposed time-dependent model are discussed.