Field Experiments (and the Lack of Thereof) for Testing Revenue Strategies in the Hospitality Industry

Abstract

This paper outlines opportunities that field experimentation can bring to accommodation managers. It also describes specific types of experiment designs that can help exploit those opportunities and increase the adoption of field experimentation. Field experimentation (often through randomized testing) has been widely adopted as an optimization technique in product design and marketing in several industries. It is also considered as the golden standard for causal inference and thus a critical tool for decision makers. As such, companies have successfully used field experimentation to reduce costs, increase revenues, and maintain an edge in their customer experience in highly competitive environments. However, a number of optimization problems with a rich academic and commercial history have resisted this push. In certain industries, such as hospitality, to the authors’ knowledge, there is little publicly documented work detailing results of field experiments applied to revenue management, and the use of such tools remains the privilege of big corporate brands with a small overall market share. This happens in a $500 billion industry in which vendors and academics alike claim that price optimization can yield uplifts of 10% in revenue. This paper discusses the likely causes of the sparse adoption of field experimentation for revenue management in hospitality. By explicitly addressing the complexities of revenue management, and outlining specific experimental designs aimed at handling those complexities, this paper aims to start a public conversation about experimentation in hospitality that should benefit the industry as a whole.