Customer Preferences and Opaque Intermediaries

Abstract

Using two choice-based experiments, we evaluate consumer preferences hotel attributes for firms selling hotel rooms across three online distribution channel formats: full information, semi-opaque, and opaque online travel agents. A multinomial logit model is used to analyze the experimental data and measure consumer trade-offs between price and other product attributes. We then use these preferences to determine optimal channel selling strategies. Our optimal channel strategies illustrate under what conditions firms should add opaque distribution channels and the resulting incremental revenue obtained with the setting of optimal channel specific prices. We deploy two choice-based experiments, traditional and menu-based, in an effort to add flexibility to survey respondents in choice selection. As part of our analysis, we compare managerial insights from analysis based on traditional choice-based experiments to that using menu-based choice experiments. In general, we indicate that both forms of opaque selling increase firm demand and that with appropriate pricing can also increase firm revenue. In addition, opaque channels have elevated price sensitivity and increased impact of guest reviews versus traditional online travel agents.