The More the Merrier? Understanding How Travel Frequency Shapes Willingness to Pay

Abstract

Customers’ evaluation of hotel prices has received increasing attention in hospitality research. Beyond the specific attributes of the offer, internal norms related to prior experiences affect customers’ response to price. Drawing on the behavioral price literature, this study investigates the effect of travel frequency and reference price on the formation of travelers’ willingness to pay (WTP) for accommodation. The study presents a novel methodological approach introducing the concept of instantaneous indirect effect. Results offer support for an inverted U-shaped relationship between travel frequency and WTP, mediated by the internal reference price. WTP reaches its peak when the customer has booked an accommodation 6 times in the past 2-year period. The findings provide clear implications for practitioners. Monitoring customers’ travel frequency and integrating it into dynamic pricing models will create a better alignment of room rates with travelers’ WTP, which will make revenue management techniques more customer centric and, ultimately, enhance profitability.