Tuesday, 31 January 2012

Is the advertised price too good to be true? No. (Part 2 of 2)

Yersterday I analyzed a deceptive travel deal that was much less of a discount from the regular price than it was advertised to be.

Today I’ll look at the flip side of the coin: What happens when you are offered a price that’s much more of a deal than the company might have meant to offer?

Should you accept such an offer? Should you feel guilty if you do? Will a travel company honor a “deal” that turns out to be better than they thought it was? And what can you do, politely, to make sure that they will honor such a price?

Here’s a case study of what happened to me with a recent hotel/resort reservation:

“Too good to be true” offerings for airfares have gotten more notice than those for other travel services. Last year, for example, when Korean Air first entered fares in reservation systems for a new route they were starting in December to Koror (Palau, in the western Pacific), they made through round-trip tickets available from their gateways in the USA for a little over US$500 round trip, when they had meant to offer fares of $1,000-$2,000.

News of the low prices to Palau went viral on bulletin boards like Flyertalk.com, and several hundred people bought tickets to Palau at those prices. Two months later, Korean Air unilaterally voided their tickets and offered them involuntary refunds and a $200 per person voucher toward future travel.

Some purchasers may have assumed that the low price to Palau was a pricing mistake. Others probably didn’t. It’s not unusual for an airline to offer deep discounts on the inaugural flights on a new route. In December 2001, when Korean Air started service to Hanoi, they offered an introductory fare that was about half of the lowest fare valid for those dates on any other airline. That was a deliberate promotional technique, not a pricing mistake, but it didn’t look any different to prospective purchasers than this year’s inaugural special price to Palau.

(I was on the second-ever Korean Air flight to Hanoi, on the weekend before Christmas in 2001. The problem with the inaugural special to Hanoi was that, having no experience with the route, Korean Air underestimated the peak holiday demand and overestimated the no-show percentage, so the flight was heavily overbooked. But that’s another story.)

I’m not, at least not now, going to wade into the debate about whether Korean Air did the right thing in voiding tickets two months after taking customers’ money, or customers did the right thing in first buying what some of them probably assumed were “mis-priced” tickets and then insisting that they be honored. But I tell this story to give some context to the similar issues that arise more often, although usually on a somewhat smaller scale, with hotel pricing.

Hotel pricing and booking, like airline tickets but lagging a few years behind, are getting both more complex and more highly automated. And hotel rates have always been more variable than airfares. As noted in my introduction to hotel discounting, airlines can adjust capacity seasonally or even from day to day, in ways that hotels can’t, by altering the numbers of flights or the sizes of the planes on a particular route.

There are orders of magnitude more hotels in the world, with vastly more decentralized pricing, than there are airlines. And if there are rooms likely to be empty, and other hotels available nearby that you could go to instead, hotel prices are always negotiable. Always, no matter what hotel managers may say publicly.

Finally, marginal costs are a higher percentage of typical prices for airlines (mainly fuel) than they are for hotels (mainly labor for room cleaning), so hotels can offer much greater percentage discounts than airlines from normal rates without losing money. (Although both airlines and hotels sometimes offer money-losing rates deliberately when they feel that the loss will be a worthwhile investment in marketing.)

All of these factors mean that pricing mistakes by hotels are much more common than mis-priced airline tickets, and less likely to be distinguishable from deliberate (but often, to purchasers, inexplicable) discounting.

Last August, for example, I made reservations to stay at the wonderful Costanoa eco-resort near the coast south of San Francisco on Saturday night of the Martin Luther King, Jr., holiday weekend in January.

A stay at Costanoa is a major splurge for us — this was our 30th anniversary, and one of the relatively few long weekends for my partner during the school year — but we’ve stayed there before at widely varying prices up to and including their highest rates for some of their most expensive accommodations.

Costanoa has a wide range of accommodations from a KOA-affiliated campground and RV park to semi-permanent “safari” style tents to rooms in a luxurious lodge. Even within each class of accommodations, they have a wide variety of discounts (15% for guests who arrive midweek on foot or by bicycle, for example), discounts for prepaid and nonrefundable bookings, and different prices on different dates, for reasons that aren’t always obvious.

For the night I was interested in, Costanoa’s Web site showed rooms in the lodge available for US$29 and change, including taxes, if I was prepared to prepay in full at the time of booking. The same price was available for certain other nights, with no obvious pattern.

I wouldn’t have been surprised if my request for a $29 booking was declined, but it wasn’t. My credit card was charged the full amount, and I was given an itinerary and a confirmation number.

Five months later, my companion and I arrived at Costanoa at dusk on the appointed evening, eager for a bath and a comfortable bed after a strenuous (for two 50+-year-olds) 94 km/58-mile ride over the ridge of the Santa Cruz mountains, starting from the end of the BART line at Millbrae, one stop past the SFO airport on the San Francisco Bay side of the peninsula.

I had made sure to bring a printout of my confirmation, showing that my credit card had been charged for the full amount due. I was also prepared, if there was no other way to get a bed, to pay a higher price (although not without serious, if polite, protest, and possibly follow-up).

At the reception counter, I gave my name and said I had a reservation. The desk clerk, without comment, handed me a credit card charge slip made out for $219.

“I’m sorry,” I said with a smile, “But this isn’t the rate that I booked. And my credit card was already charged for the full amount of the booking.”

“What was the rate you booked?” she asked, with seemingly genuine surprise.

“I was charged $29”, I replied, and handed her the printout of my confirmation and receipt. “That was the price that was offered on your Web site.”

The clerk looked puzzled, and went to get her supervisor. Fortunately, the reservation manager was in the next room. I’m not sure what would have happened if she hadn’t been available.

The manager first asked on what Web site I’d found a $29 price.

“Your own Web site, Costanoa.com.” I showed her the printout of my confirmation.

She checked the reservation in her computer, suppressed a double-take, then laughed. “We can’t honor this price. We couldn’t even clean the room for $29.”

“I’m sorry,” I said, still smiling. “You gave me a confirmation. You charged my card, in full. It’s a contract.”

I don’t know if the magic words were “confirmation” (probably not), “contract” (maybe), or “you already took my money” (possibly the decisive factor), but at this she shrugged and said, also still smiling, “It’s a contract. Of course we’ll honor it.”

Interestingly, the manager told us she could see the original $29 price in the reservation, but could also tell that it had been changed — she didn’t say when or by whom — to the “regular” $219 price that the clerk had tried to charge us when we first arrived.

The manager also told us she would honor any other similar reservations. As a good-will gesture, though, and as a thank-you for honoring the booking so graciously — and because we’d made the second reservation mostly as a back-up in case we postponed our bike trip on account of rain — we voluntarily cancelled the reservation we’d made at the same price for the following Saturday night.

Without further ado (or having to pay more), we were given the keys to a deluxe room with a balcony and a view, working fireplace, and bathtub big enough for two. The reservation manager, for her part, was left with the task of figuring out how many future reservations at this price she was going to have to deal with, and how they had been made.

To give credit where credit is due, I think that my success in getting the reservation and price honored was due at least as much to Costanoa’s ethical business practices, and the competence of their reservation manager, as to any particular skill on my part.

It certainly didn’t hurt our case that we had arrived by bicycle, it was getting dark, and unless the hostel at Pigeon Point lighthouse had beds available (questionable without reservations on a Saturday night, although they always try to find room for people who arrive on foot or bicycle) the closest other places we might have been able to stay were more than 35km/20 miles away in Half Moon Bay or Santa Cruz.

I wouldn’t have gotten the booking honored, however, if I had been willing to capitulate too easily when I was told that, “We can’t honor that price” — or, I suspect, if I had made an angry scene. “Gentle but firm” seems to have been the right approach.

How was I able to make a reservation for $29 for a night when the hotel’s management had intended to set a price of $219 for that room on that night? It’s tempting to call it a data entry error, but that would obscure a more fundamental contributing factor: Costanoa’s decision to rely on an entirely automated booking engine to make reservations, issue confirmation numbers, and take payments.

For what it’s worth, Costanoa outsources that functionality to Synxis, formerly an independent company but since 2004 a division of the Sabre CRS/GDS. But the same thing could have happened with any fully-automated reservation robot.

If I’d talked to a human reservationist, or if someone on Costanoa’s staff had looked at my reservation request before confirming it and charging my card, they would noticed that it wasn’t a booking they wanted to accept. Like many other hotels, they have made a choice — perhaps not fully appreciating its implications — that the potential value of providing immediate confirmations outweighs the risk of having to honor some mis-priced bookings.

The labor cost of human reservation quality control would be almost negligible. I suspect that the current front desk staff at a facility the size of Costanoa could have looked at each new online reservation request for a few seconds before clicking on “confirm” without it occupying them for more than a couple of minutes each hour.

Should I feel guilty for not accepting their invitation to pay more than what I had agreed, and what their robot had already told me would be the full price? No.

It wasn’t my choice to forgo human quality control, and lack of oversight provides no justification for any business to refuse to honor the contracts that they, for their own reasons, have chosen to authorize their robots (or their contractor’s robots) to enter into on their behalf.

Businesses have the same responsibility to supervise the robots they have authorized to act as their agents and execute contracts on their behalf that they have to supervise employees or contractors to whom they have given the same authority. And businesses have the same responsibility to honor those contracts, even at a loss, once they are concluded.

If I had walked up to the front desk and an ill-trained clerk had offered a room for the night for $29, taken my money, and given me a key, would the hotel have been justified in knocking on my door later in the night and demanding an additional $200? Why should it be any different if the hotel has chosen to employ a robot instead of a receptionist, and the robot — in the exercise of its delegated authority — makes a similar “mistake”.

Keep in mind that the robot in question was authorized to initiate credit card charges — not a power to be handed out lightly. If the robot doesn’t have the right to execute contracts binding on its master, how can it have the right to charge customers’ credit cards?

At the moment a hotel enables a booking engine to send out confirmations or charge customers’ credit cards without human intervention, that business assumes the risk that some robotic mistakes will be made — mistakes that human oversight would have averted. Just as the moment a hotel gives an employee discretion to lower prices if they think a prospective guest is going to walk, it assumes the risk of having to honor bookings that employee accepts, regardless of whether a supervisor would have approved the prices if they had been consulted.

Those risks and consequences of full automation (as well as the concomitant benefits) are inevitable. Businesses, not customers, make all the decisions about how far to carry their automation and what (if any) degree of human oversight to retain. And it’s those same businesses, not their customers, who should have to accept the costs along with the cost savings.

Complex and inscrutable pricing also played a role. If a room tariff was posted in the lobby or on the Web site, with a statement that no reservations would be accepted except at the prices in that tariff, it would be much easier to argue that I or anyone else should have known that neither the reservation clerk or the reservation robot was authorized to offer any lower prices.

But having declared that the price for a particular room, on a particular night, can be whatever the hotel dynamically determines, the hotel has only itself to blame if prospective guests take whatever price it offers to rent them a room for at face value.

If the place is empty and the desk clerk likes my looks and offers me a room for $29, should I argue? Should it be any different if I ask the price for a particular room type and date by calling the hotel on the phone — or, as in my case, by consulting their Web site?

Costanoa, after all, offers rooms for half the “normal” price whenever the moon is full. (The Flash Costanoa.com Web site makes it difficult to link to the full moon discounts directly, but you can find them on the Specials page.) With pricing principles like this, is it reasonable to expect travellers to know what the price of any given room, on any given night, is “supposed” to be? With such a pricing structure, when some rooms are given away for “promotional consideration” or marketing purposes, is there really any price so low that customers should know it’s “too good to be true”?

Have you ever had a hotel try to cancel or dishonor a reservation or confirmed price? Did you agree? In the end, did they honor the booking? Did you feel guilty?

Please share your stories in the comments.

Link | Posted by Edward on Tuesday, 31 January 2012, 21:16 ( 9:16 PM)

Law professor (and former Microsoft programmer) James Grimmelmann discusses this and some similar issues of monetary "mistakes" by robotic agents:

"Computer Crime Law Goes to the Casino"


Cross-posted with additional comments:


Posted by: Edward Hasbrouck, 9 May 2013, 22:20 (10:20 PM)
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