IDEAS home Printed from https://ideas.repec.org/a/inm/ormsom/v19y2017i1p1-18.html
   My bibliography  Save this article

Would You Like to Upgrade to a Premium Room? Evaluating the Benefit of Offering Standby Upgrades

Author

Listed:
  • Övünç Yılmaz

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • Pelin Pekgün

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

  • Mark Ferguson

    (Moore School of Business, University of South Carolina, Columbia, South Carolina 29208)

Abstract

An important challenge faced by hotels is how to set their premium room price differential over their standard rooms and how to manage the upsell process. Standby upgrades, where the customer is only charged if the upgrade is available at the time of arrival, is one technique that has become increasingly popular in practice for monetizing the premium room inventory that may otherwise go unused. We develop a model of premium room and standby upgrade pricing under an uncertain market size and examine how and when standby upgrades can provide additional revenue for a hotel. When guests are myopic, we show that standby upgrades can be used as a powerful price discrimination tool, especially for hotel properties with high premium-to-standard room ratios. When guests are strategic, the benefit of standby upgrades is significantly diminished; we show that standby upgrades only increase revenue when the hotel property has a low premium-to-standard room ratio. Our findings thus provide guidance on the hotel types and environments that are most suitable for standby upgrades.The online appendix is available at https://doi.org/10.1287/msom.2016.0596 .

Suggested Citation

  • Övünç Yılmaz & Pelin Pekgün & Mark Ferguson, 2017. "Would You Like to Upgrade to a Premium Room? Evaluating the Benefit of Offering Standby Upgrades," Manufacturing & Service Operations Management, INFORMS, vol. 19(1), pages 1-18, February.
  • Handle: RePEc:inm:ormsom:v:19:y:2017:i:1:p:1-18
    DOI: 10.1287/msom.2016.0596
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/msom.2016.0596
    Download Restriction: no

    File URL: https://libkey.io/10.1287/msom.2016.0596?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Park, Chang Hee & Yoon, Tae Jung, 2022. "The dark side of up-selling promotions: Evidence from an analysis of cross-brand purchase behavior☆," Journal of Retailing, Elsevier, vol. 98(4), pages 647-666.
    2. Xufeng Yang & Juliang Zhang & Wen Jiao & Hong Yan, 2023. "Optimal Capacity Rationing Policy for a Container Leasing System with Multiple Kinds of Customers and Substitutable Containers," Management Science, INFORMS, vol. 69(3), pages 1468-1485, March.
    3. Yao Cui & A. Yeşim Orhun & Izak Duenyas, 2019. "How Price Dispersion Changes When Upgrades Are Introduced: Theory and Empirical Evidence from the Airline Industry," Management Science, INFORMS, vol. 65(8), pages 3835-3852, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormsom:v:19:y:2017:i:1:p:1-18. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.