Maximizing service value: A case study of online hotel reservation

This research studies the customer behavior in an online hotel reservation in which a hotel differentiates the same room service with different sale conditions: (i) Restriction Condition, (ii) Mild Condition, (iii) Last Minute Condition. Customers face uncertainty about their plan, and they are charged with cancellation fee. Customer utility is developed and demand function is derived. Then, the optimal prices for different conditions are determined to maximize hotel´s profit, and achieve customer saving. From numerical experiment, offering three sale conditions, hotel could increase profit 7.6 % compared with offering the restriction and last minute conditions, and 6.6% compared with offering the mild and last minute conditions. Three sale conditions could generate an average customer value of 40.26% compared with offering the mild and last minute conditions. In addition, customer saving when cancel the reservation of 34.49% could be reached when compared with the restriction and last minute conditions.