Pricing for “free” WiFi At Hotels – Effect of Reference Price

When I last stayed at W hotels, I was billed a separate $14.95 for a day of WiFi. Someone else was paying for my stay and had previously approved charges for Internet, so I did not think twice. But hotels that charge  $12 to $20 for WiFi now increasingly face consumer backlash who now come to expect the WiFi to be free. Even for business travellers it seems unfair to waste their employer money on what should be free. The New York Times reports on how even the economy  no-frills hotels offer free WiFi but not the premium ones.

The reason for customer backlash comes from their reference price, the price they paid for WiFi in most places. Most coffee shops, parks, airports, malls now offer free WiFi. So customers come to expect free WiFi in other contexts including hotels. Some of the economy hotels promote free WiFi in their messaging. Since customers used WiFi for free else where they feel pain paying $14.95. The interesting aspect is  the reference price is set from a completely different context, although customers do not balk at paying for breakfast in hotel restaurants.

Free WiFi came into existence as a way to attract customers. Coffee shops used free WiFi to attract customers in the hope that they will spend more in goods did not ever consider monetizing it. The economy hotels offer no differentiation and tacked on freebies like  continental breakfast to attract price sensitive segment. Moving from free breakfast to free WiFi was not a big leap.Premium hotels on the other hand charged for everything, from parking to high priced phone calls and did not give away breakfast. So charging for WiFi was part of their natural evolution – if it adds value, charge for it.

Should WiFi be free? I do not believe so, be it in coffee shops, parks or hotels. If the service adds value to customers then the service provider should capture some of the value created. How can hotels like W  can continue to charge for WiFi. I will cite my study of  managing customer percetion of Airline unbundled pricing. Following the recommendation I made in my previous study, hotels can offer options.  A free basic low-speed version and a premium high speed paid version. The presence of free version will match the reference price customers are used to and hence reduced their resistance. But those who value speed and reliability of connection will gladly upgrade to the paid version.

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