Return on Service Amenities

Rebecca W. Hamilton, Roland T. Rust, Michel Wedel, and Chekitan S. Dev
Article Snapshot
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Key Takeaways

​Firms often vie for competitive advantage by providing additional services (amenities) to their customers.

Traditional marketing research methods estimate the financial return of amenities solely through their effects on initial choice. However, returns from amenities may come from either increasing initial choice or increasing repurchase.

The return on service amenities model shows that the financial returns of adding an amenity come from two different sources: increasing initial choice of the service and increasing repurchase. We find that the source of returns varies systematically across amenities.

​Article Snapshot​s: Executive Summaries from the Journal of Marketing Research​​​​​​

We develop a return on investment (ROI) model to capture how offering service amenities to customers produces two sources of financial return for firms: increasing initial choice of the service and increasing revenues from repurchase.



Research

Firms often vie for competitive advantage by providing additional services (amenities) to their customers. Traditional marketing research methods, such as conjoint analysis, estimate the financial return of amenities solely through their effects on initial choice. However, returns from amenities may come from either increasing initial choice or increasing repurchase. We propose a model to evaluate the profitability of an amenity based on both of these sources of returns and we test this model for three amenities in collaboration with a global hotel company. 

Method

We tested our model of return on service amenities for three amenities and six brands in collaboration with a global hotel company. We conducted a discrete choice experiment to estimate the effect of the amenities on initial choice. We also created a longitudinal data set that included 36 months of visit and revenue data for each customer who responded to a prestay and poststay survey about their predicted and actual use of amenities. Finally, we conducted a field experiment to validate the results for one of the amenities.

Figure: Comparison of Revenues from Initial Choice and Repeat Purchase


Findings

Our model allows us to compare the effects of offering an amenity on revenues due to changes in initial choice probabilities with those due to changes in repeat visits by current customers. We see that in some cases, revenues from repurchase drive the effects of amenities on revenues (e.g., for bottled water and fitness center amenities). In other cases (e.g., free in-room Internet access), the effects of offering the amenity on initial choice are more important.

Implications

Our research gives service providers (e.g., hotels, airlines) a model and estimation methodology for evaluating the financial return from service amenities. The model includes not just the effect of amenities on initial choice and current revenues but also the effect on future revenues. Our empirical results suggest that managers will invest in the wrong amenities if they rely solely on measuring the effects of amenities on initial choice, using currently favored methods such as discrete choice experiments.


Questions for the Classroom

  • How should managers decide which service amenities to offer their customers?

  • What are the limitations of discrete choice experiments as a research method?

  • When is it important to make decisions about service provision at the brand level rather than at the firm level? 


Article Citation

Rebecca W. Hamilton, Roland T. Rust, Michel Wedel, and Chekitan S. Dev (2017) Return on Service Amenities. Journal of Marketing Research: February 2017, Vol. 54, No. 1, pp. 96-110.
doi: http://dx.doi.org/10.1509/jmr.14.0364

Rebecca W. Hamilton is Michael G. and Robin Psaros Chair in Business Administration and Professor of Marketing, McDonough School of Business, Georgetown University (e-mail: rebecca.hamilton@georgetown.edu).

Roland T. Rust is Distinguished University Professor and David Bruce Smith Chair in Marketing, and Executive Director of the Center for Excellence in Service and the Center for Complexity in Business, Robert H. Smith School of Business, University of Maryland (e-mail: rrust@rhsmith.umd.edu).

Michel Wedel is PepsiCo Chair in Consumer Science, Robert H. Smith School of Business, University of Maryland (e-mail: mwedel@rhsmith.umd.edu).

Chekitan S. Dev is Associate Professor of Strategic Marketing and Brand Management, School of Hotel Administration, Cornell University (e-mail: chekitan.dev@cornell.edu).


Author Bio:

 
Rebecca W. Hamilton, Roland T. Rust, Michel Wedel, and Chekitan S. Dev
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