Fee-Based Upgrading for Hotel Revenue Management: Conditional and Bid Models Outperform Guaranteed Upgrades

Abstract

Hotel companies often offer consumers fee-based product upgrades to support capacity utilization and revenue goals. Three upgrading models—Guaranteed, Conditional, and Bid—dominate industry practice, but little is known about their relative efficacy in driving performance. Using a mixed-methods approach, this research suggests that Conditional and Bid models are superior to the Guaranteed model. Despite the high degree of perceived outcome uncertainty associated with Conditional and Bid models, consumers find these upgrade models more attractive than the Guaranteed model, translating to higher upgrade intent. Since consumers are starting from a point of satisfaction with their already-purchased base (room) product, they are willing to trade outcome certainty (i.e., their upgrade request being denied) for the perceived savings they can gain on the upgraded product (vs. the Guaranteed model). While the perceived savings associated with the Conditional model are easily evaluated, the Bid model operates like a sealed-bid auction. However, perceived autonomy over price allows consumers to evaluate savings based on their true valuation of the upgraded product. Although both the Conditional and Bid (vs. Guaranteed) models yield more favorable attractiveness and upgrade intent ratings, the range of bid amounts observed in this research suggests that the Bid model holds greater revenue potential.