Why Are Resort Fees So Popular When Consumers Hate Them?
Customers are outraged about the fees but do not adequately account for them.
Posted Jan 06, 2020
Consider this review for the upscale Four Seasons Hotel Las Vegas by a customer called FredMio on TripAdvisor:
“Great building and rooms but sadly all Four Seasons hotels are run by accountants. Nickel & Dime merchants. You pay a fortune for a room in advance, and then they want an extra $39 plus tax resort fee per day just for wifi and the two coffee pods in your room… Most 5-star hotels offer free wifi and water as standard. Four Seasons must not care about repeat customers. I won’t be returning.”
Or this review of the NOMAD Las Vegas by Sean M (also on TripAdvisor):
“Nice place with a pleasantly friendly staff...Too cold for the pool in midseason but still hit with $37 resort fee each day makes me a little frosty. Maybe I am just cheap, but I really do not mind paying for value….Friendly but spendy. Maybe elsewhere next time.”
Both the Four Seasons and the NOMAD are among the most highly-rated hotels in Las Vegas, ranking among the top 10 on TripAdvisor. Yet, a common complaint of many of their guests is that they charge mandatory resort fees. As reporter Ed Komenda points out:
“Along the Strip, nobody likes paying [resort fees]. But hotel companies have come to depend on those concealed nightly charges that run as high as $45 and inflate hotel bills, often to the surprise of the family that booked the trip.”
According to the website ResortFeeChecker.com, a total of 124 hotels in Las Vegas charge resort fees at the moment. Resort fees are common in hotels beyond Las Vegas, including New York City, Orlando, New Orleans, and elsewhere. Yet, they contradict the basic principle of good marketing practice that pricing strategies should be transparent and satisfy customers, not incense them. No customer likes a resort fee, and most actively hate them. They are widely considered to be “the most deceptive and unfair pricing practice in the hotel industry.”
How to explain this contradiction? In this post, I want to consider the psychological reasons why resort fees are so popular despite hotel customer outrage.
What are resort fees?
Resort fees are mandatory per-night charges that are tacked on to the listed price of a hotel room. For this fee, the customer gets various services that vary by hotel. At the Four Seasons Las Vegas, for instance, the per night resort fee of $44.22 (as of early-January 2020) provides customers with internet access as well as access to the hotel’s pool and spa, plus in-room coffee, a daily newspaper, and some other things. Customers hate resort fees for two main reasons:
(1) Resort fees are mandatory. They have to pay them even if they don’t want or use the amenities
(2) Resort fees are often hidden and often hard to find out. For example, they are excluded from per-night room rates quoted on travel sites like Orbitz or Travelocity. Many consumers will realize that they are on the hook when they check out and receive the final bill.
Resort fees are an example of partitioned prices
Resort fees are an example of what consumer psychologists call partitioned prices, defined as “a method of presenting the price offer to the customer in which the seller unilaterally and arbitrarily divides the total price of a product into two or more separate mandatory components.” In this case, the hotel room charge is one component, and the resort fee is the second one.
A lot of research has looked at how consumers perceive partitioned prices and their effects on buying decisions. Much of it shows that when marketers use partitioned prices (instead of all-inclusive ones), it increases the product’s perceived value by lowering the consumer’s estimate of how much the product costs. Customers may complain about having to pay the mandatory resort fee on review sites, but research shows that they fixate on the hotel’s room rate and underestimate the magnitude of the resort fee.
Consumers underestimate resort fee + room rate compared to an all-inclusive price
This underestimation is a reliable effect and has been shown in many studies. In one of the most-cited and earliest controlled laboratory studies about this issue, participants were asked to choose between telephones and were assigned to one of three conditions. While the identical phone was shown to all participants, in the all-inclusive price condition, the phone cost “$82.90, including shipping and handling.” Its cost was expressed as “$69.95 plus $12.95 for shipping and handling” in the partitioned dollar price condition, and in the partitioned percentage price condition, it was “$69.95 plus 18.5 percent of the price for shipping and handling.” Note that the total price works out to be the same in all three cases, only how the price is expressed is different.
Participants in all three conditions were later asked to recall the phone’s price. Those given the all-inclusive price recalled $83.90 (slightly higher than the actual price), the partitioned dollar price group recalled $80.36, and the partitioned percentage price group recalled $75.43. In other words, both groups given partitioned prices recalled lower prices than those given all-inclusive prices. The study’s authors concluded that approximately a quarter of the study participants who saw partitioned prices completely ignored the surcharge when recalling the telephone’s price afterward, and 55 percent failed to fully account for the surcharge.
More recently, researchers have discovered that across studies, partitioned prices lead to an average of 9 percent increase in customer preference when compared to an all-inclusive price.
Resort fees are so effective because they create the illusion of transparency. Consumers mentally process base prices more thoroughly than they process ancillary prices. The harder a company makes it for the consumer to do the calculations to figure out an item’s total price, the lower is the consumer’s estimate. Resort fees provide a great example of a gap between what customers say and how they actually behave. They express outrage, but they have failed to adequately account for the resort fee in their buying decision.
The Hotel Advertising Transparency Act of 2019 to the rescue
To help consumers deal with the potentially faulty decision-making resulting from resort fees, help is on its way. Last September, new bipartisan legislation called the Hotel Advertising Transparency Act of 2019 was introduced in Congress. If and when it is passed, it will outlaw hotels from advertising room rates that do not include resort fees. Hotels would have to include the full pretax room price when advertising their prices. When cognitive biases potentially harm consumers, sensible public policy–making can help to reduce these effects.