2020 saw unprecedented swathes of holiday cancellations.
NB: This is an article from Hong Kong Poly
The year COVID-19 hit was a tough one for hospitality and tourism firms, who were forced to make swift decisions about changes to their refund policies. However, no one could clearly envisage how those crisis-induced changes would impact customer loyalty and trust.
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In the first study of its kind, Dr Daniel Leung and Ms Christine Seah of the School of Hotel and Tourism Management (SHTM) at The Hong Kong Polytechnic University looked at customer reactions to generous or self-serving refund policy changes, and whether these are shaped further by the magnitude of changes and the format in which refunds are offered. This inspiring work will help industry practitioners to optimise refund policy strategies in the future.
Without question, the COVID-19 pandemic was a brutal shock to the hotel industry. Confronted with unimaginable numbers of cancellation requests and refund claims, for the main part the industry reacted sympathetically to customers. Some hotels, such as Hilton and Premier Inn, started allowing refunds on previously non-refundable purchases during the crisis, and Expedia and Travelodge offered customers cash or vouchers to be used on future bookings. “Helping consumers in need during crises is considered to be an altruistic behaviour, even though the changes may result in financial losses”, say the researchers.
However, a few companies took a more selfish path. EasyJet and British Airways, for instance, breached cancellation promises and denied their customers any refunds during the pandemic period. Negatively changing refund policies from fully refundable to partially or non-refundable might go some way to limit a firm’s financial losses in the short term, but it is a rude violation of the initial promises made to customers. According to the researchers, these actions are “likely to reduce consumers’ trust of the company and even their intention to repurchase products from that same company in the future”.
How did these two strategically distinct crisis-induced reactions affect customer behaviours and attitudes? Until now, the effect of the “polarity” of change, that is, whether refund policy changes are positive or negative for consumers, has been left unmapped. The researchers reasoned that “if one hotel behaves egoistically and changes a policy to benefit themselves only, consumers would perceive that policy change as an unfair business practice”. They predicted that this “opportunistic” behaviour would decrease consumers’ trust and lower their intention to repurchase products from that company. Conversely, positive changes should increase trust and repurchase intentions.
Imagine your feelings on learning that you are to receive a refund, only to then find out that the refund is small, or that it comes in the format of a voucher that can only be used within the next two months. Would that token gesture be satisfactory? Previous work has considered refund policy as a “one-off” or “static” event, without fully considering the detailed characteristics of changes. “Another objective of this study was to examine the effects of the interplay of the polarity of change in refund policy, the magnitude of change in refund policy, and refund format on consumers’ trust of the company and repurchase intention”, explain the researchers.
