Wikipedia defines ‘Prospect Theory’ (developed by Princeton University Professor, Daniel Kahneman and Amos versky in 1979) as ‘a behavioral economic theory that describes decisions between alternatives that involve risk, where the probabilities of outcomes are known’. The theory says that people make decisions based on the potential value of losses and gains rather than the final outcome, and that people evaluate these losses and gains using interesting heuristics.
People who have made a purchase will be easier to spend a bit more if it is of value to them. Having said this, the hospitality industry can benefit from this theory by up-selling its products and services via ‘upgrading’.
Having led the online distribution of two largest chains in the country, my team and I have been adopting ‘upgrading’ in most of the properties we were managing by diversifying the rates and giving more options with different values to our guests.
For example, a regular Superior Room costs US$100 – but they can have Superior Room with an ocean view with an additional costs of US$15. Or, they can purchase a room and a breakfast rate of US$130 for our deluxe room – but they can have a dinner for two by just adding US$30.
Distinguishing each value of the upgrades offered to the guests is critical. So is communicating them.
The Website is an important tool to communicate the upgrades, especially on the booking page. reservation e-mail confirmation can be a good medium as well to communicate this as well as newsletter, preferred member e-mails, etc.
At the end of the day, it is also the hotel’s aim to maximise the revenue from its higher room category – and ultimately, maximising the RevPAR.