Post-Pandemic hotel cancellation policy: Situational cues as perceived risk triggers

Abstract

Hotels provide free cancellation and non-refundable options, regardless of the demand situation. However, each option is beneficial in different demand situations. Unlike travelers who can self-select a preferred cancellation policy, hotel operators lack control over consumers' cancellation choices. This research suggests that hotel operators utilize situational cues to increase free-cancellation choices, which are beneficial during the high season. Two experiments investigated factors that influence cancellation policy choices. Study 1 demonstrated how psychological mechanisms operate in the decision process. The effects of the price gap between the two options, cancellation policy option, and risk tolerance on booking intentions were tested. Study 2 showed how situational cues trigger psychological responses using irrelevant information and price gap when choosing a cancellation policy. The findings indicate that participants with low-risk tolerance are more likely to choose a free cancellation, regardless of the surcharge amount to pay for a free cancellation. A travel risk-related advertisement triggers participants’ risk tolerance, inducing them to choose free cancellation over a non-refundable choice. The findings guide effective marketing strategies to influence cancellation policy choices.