5 Ways Hotels Can Use Behavioral Economics to Improve Conversion Rates
December 20, 2017 1:55pm
By Gautam Lulla
Understanding the rationale behind consumer decision-making has long been an obsession for marketers. Popularized today as behavioral economics, brands such as Amazon and Netflix invest millions into understanding the psychology of their consumers shopping habits in order to drive purchases.
In the travel industry, OTAs also build their platforms around principles of buying psychology to boost conversion rates. Yet far from being a secret or expensive investment, many of these same principles can be applied by hotels.
In the following post, we’ll look at 5 ways hotels can use behavioral economics with actionable examples on how to use them to increase bookings.
1) Reduce decision making
According to the famous “Paradox of Choice” (a term coined by psychologist Barry Schwartz), having too many options can be a bad thing. With so many possibilities available to us, there’s always the sense that a better choice could have been made. The whole buying process becomes full of anxiety and imbued with uncertainty.
In terms of how this plays out for businesses, consumers can end up feeling paralyzed by having too many choices, which actually makes them less likely to make a purchase. For hotels looking to increase conversion rates, the takeaway here is to offer your guests fewer options—or at the very least, split options into multiple steps.
How to apply this tactic:
While it might be tempting, displaying all of your room types and rates on one page can quickly overwhelm potential guests. Even if you’re only showing five different room types and five rate types, you’re still giving your guests 25 possible options to consider in one hit.
That’s why it’s best to split the booking process into separate steps. To make life easier for your guests, introduce different options in a logical, easy-to-digest sequence. Start by showing them the room options first, and then give them the various rate plans and add-ons.
To further simplify things, always pre-select a default option within the booking process. According to the power of defaults, people invariably choose the default (in part because it represents the easiest choice). This tendency gives you the ability to steer your guests’ buying habits and make decision-making easier.
To capitalize on this tendency, you could offer your lowest available room rate as the default. Not only will this reduce the need to make a choice, it’ll give guests a point of comparison with more expensive rooms.
2) Use rounded numbers for rates and discounts
Research shows that rounded numbers rather than non-rounded numbers (e.g. $100 vs. $98.75) are better at driving emotionally led purchases.
The reason is that rounded numbers are easier to process and encourage a reliance on emotions, which leads to a sense of the decision “feeling right.” In contrast, the extra mental bandwidth needed to process non-rounded prices turns the decision into a rational one.
Given that travel purchases are often linked to an emotional desire, rounded numbers can be a useful extra way to make room rates and deals look more appealing.
How to apply this tactic:
This one is pretty simple. When advertising your room rates, stick with dollars and avoid using cents i.e., go with $100 a night instead of $99.95 a night. The same method applies when you’re offering a discount. Essentially, making your rates and discounts easy to cognitively compute will increase the likelihood that your potential guests end up converting.
3) Address buyer’s remorse
The abandonment rate in the travel industry is notoriously high. A much-cited study by SalesCycle has found as many as 81% of people abandon their online travel bookings.
While there are various reasons for this trend, there’s a universal theme within consumer psychology that often causes consumers to rethink their purchases.
Commonly referred to as buyer’s remorse, consumers are often known to feel guilt after making an expensive purchase. So even when a person spends hours consulting online reviews and comparing accommodation options, they may still have a nagging sense that they didn’t make the right choice after booking with you.
You can actually reduce the chance of buyer’s remorse before, during, and after the purchase. For instance, emphasize free cancellations for refundable rates in large bold text to reassure bookers that they can change their mind if they want to.
For the booking form, minimize the amount of details required (e.g. name, address and card number) to complete the booking. This will reduce the amount of time your potential guests have to think about the pain of payment.
After the booking has gone through, use your confirmation and pre-stay emails to make your guest focus on all the positives of their decision. Rather than a simple “Thanks for booking” message, call out your most attractive amenities or destination highlights, and use inspiring images to excite them about their upcoming trip.
By focusing on all the benefits your guests will get to enjoy, you’ll add to the perceived value of their purchase and reaffirm they’ve made the right decision.
4) Use urgency-based selling
Urgency-based selling has become a cornerstone of the online travel industry. OTAs such as Booking.com and Expedia have baked it into the heart of their user experience. And for good reason. It’s an approach that’s been shown to significantly boost conversion rates.
A series of tests by internet-based research lab MarketingExperiments found that using urgency led to a staggering 992% sales uplift.
The whole idea of urgency is built around the scarcity heuristic, which is the observation that when a product or service is in short supply it assumes more value. Not wanting to miss out, consumers are more inclined to snap up something valuable that might not be around for long. Suffice to say, urgency can be an extremely potent tool to help hoteliers boost bookings.
Rather than adding an end date to your offers and deals, use a countdown timer. That way, customers will know exactly when your promotion ends. You can also use your messaging to add scarcity by highlighting limited availability, such as “Don’t miss out! Only 2 rooms remaining.”
To ramp up the urgency, let your customers know how many reservations have been made in the past 48 hours. Or advertise how many other people are looking at the same room they are. Combined, these strategies can reduce the possibility that potential guests delay booking and subsequently end up doing so elsewhere.
Check out our dedicated post on using OTA-style urgency principles for more tips and in-depth examples on this topic.
5) Emotional engagement
Amid the science of behavioral psychology, it’s important to remember that human choices are often heavily rooted in emotion. This is especially true of travel, an experience that’s inherently about fun, freedom and excitement. The last-minute booking boom further illustrates travels association with emotional, spur-of-the-moment decision-making.
So while discounts, deals and incentives all have their place, it’s important not to forget your guests need to feel inspired. Compared with the commoditized nature of the OTA experience, hotels can steal an advantage here by injecting their own websites with personality, flair and a unique tone of voice.
Combine descriptive language with emotion-rich adjectives to bring your destination and property to life. For instance, instead of simply describing your amenities with bullet points or lists, weave them into a story that invites your guests into the scene.
The homepage of Hotel Milo Santa Barbara does a great job of selling their coastal location with an experiential approach. Guests are invited to “breathe in fresh Pacific air,” “discover new Pinots on a Santa Barbara wine tasting tour,” and “buy a hand-painted vase from a State Street boutique shop.”
This form of storytelling helps to create vivid imagery and emotionally engage with the target audience, shifting the idea of booking a hotel room away from transaction and into something altogether more personal and human.
In the same way, think about the standout features of your property and location and make them the heart and soul of your copy.
Tap into the psychology of decision-making
In a hyper-competitive online booking space, using the kind of conversion triggers and psychological pricing strategies employed by OTAs and other e-commerce giants can give your hotel an invaluable edge.
It’s true to say the quirks of behavioral economics are often subtle and sometimes entirely counterintuitive. But adopting the guiding principles outlined above will almost certainly help to influence your guests’ choices, and nudge them one step closer to a booking.
Tags: gautam lulla,
psychology of booking,
Gautam is President at Travel Tripper and outspoken expert in hotel technology and distribution. When he’s not busy disrupting the status quo, you can find him ripping powder on the slopes. Contact him at firstname.lastname@example.org.
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