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Why do luxury hotels charge for Wi-Fi, but cheap hotels don't?

The lobby of the Waldorf Astoria Hotel.

MORE MONEY, FEWER AMENITIES?

A question from listener Allison Najman has brought us to New York's Waldorf Astoria Hotel. The lobby is enormous and elegant. There are staffers everywhere, a check-in desk, a concierge desk, a dining area. President Obama stays here. A room tonight goes for $399 -- it's not their nicest, but it's pretty lovely.

And Wi-Fi? That'll cost $19.95 per day. 

We head downtown to Hotel 17. The lobby is small and basic. Instead of a giant staff, there's just a guy. You can stay here tonight for $86, a very good deal in New York. 

So it's not the Waldorf. But the Wi-Fi? Free.

HOW DOES THAT WORK?

Toni Repetti, a hotel management professor at University of Nevada Las Vegas, says on one hand, it's simple: "The easy answer to that is because they can."

Luxury hotels can charge more because they know their customers will pay more. Jeff Beck, a former Marriott executive who teaches at Michigan State's business school, says it has to do with a scale economists call "price sensitivity."

"The type of people that are going to be staying [at a luxury hotel] are typically there on business, which generally means that someone else is paying for it," Beck says.

If you're a business traveler who can stick your company with the bill, you're hardly price sensitive at all. As for the folks staying at fancy hotels for pleasure? Repetti says their wealth means they're not very price sensitive either.

"A $20 fee on a $400 room... is probably not a big deal when they're paying $400 for a room," Repetti says.

Folks at budget hotels, however, are definitely price sensitive. Managers have to keep Wi-Fi free just to compete.

SO... STEAL THE FREE INTERNET AT STARBUCKS?

 
 

Things are changing. The website HotelChatter has a long-running survey of hotel Wi-Fi. Managing editor Juliana Shalcross says nearly two-thirds of hotels offer it free, and that number's growing.

"When [guests] go to a hotel and they see that it's charging them for Wi-Fi, they get a little pissed off and I think they make that known," she says.

Hotels don't want angry customers in the age of online reviews and social media. Companies that give hotels a lot of business are complaining too. So many hotels are getting rid of Wi-Fi charges, which sounds great. But, travelers beware: Repetti points out they're doing something else, too.

"They also are increasing their room rates to make up for that. You may not see that, but they are increasing, even a little bit."

* CORRECTION: In an earlier version of this story, we misspelled the first name of Allison Najman.  The text has been corrected.

About the author

Mark Garrison is a reporter for Marketplace and substitute host for the Marketplace Morning Report, based in New York.
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This article gives the light in which we can observe the reality. This is very nice one and gives in depth information.

Yes the typical customer at a luxury hotel may be less sensitive to price-related issues (like being charged an extra fee for internet access) and so the the hotels that opt for such charges do it essentially because they can. However, the concept of "nickel and diming" your customers simply because you can also could also justify fees for clean sheets and hot water. Eventually this line of thinking leads to a perceived brand image of miserliness, which is a tad inconsistent with being a "luxury" anything.

I choose never to stay in hotels that charge for wifi, but then I rarely stay in traditional hotels these days. Properties like Staybridge have figured out the formula for weary travelers by providing usable kitchens, homey amenities and free wifi while brands like Sheraton and Kimpton give you a basic room and charge for wifi.

I've spent a lot of nights in hotels, and I don't understand the appeal of a box in a "luxury" property that doesn't even have a mini fridge and charges for internet. Unless it's a splurge holiday, chains like Hyatt Place and Staybridge fit the bill perfectly.

See ya, Sheraton.

"Price sensitivity" is no more satisfying as an answer then the original one of "because they can". Why would they charge for wireless to these price insensitive customers, rather than just charging more for the room in the first place? To make that stick as a true explanation, you would have to explain why the sensitivity to room prices is greater than the sensitivity is for wireless prices.

I think that fancy hotels started offering internet a long time ago, when it was uncommon to want and expensive to provide, so it made sense to charge them for it. Once that precedent of charging was set, it was slow to change.

I have stayed in a few less-expensive, off-strip casino hotels in Las Vegas. They charge for Wi-Fi in the rooms, but, like Mmontes noted, they have it free in the coffee shops, be it Starbucks or their own in-house offering. Which, of course, are right in the action. They want you out of the rooms and playing.

I recently stayed At a brand name hotel in Arlington, VA. The in-room WiFi wasn't free. But it was free in the lobby. Of course, the lobby also had restaurants and lounge/bar. Which encourages the Wifi users to spend a bit on food and drink!

Mark,

I heard this tonight and I was very surprised at the lack of information you provided your audience.
I have been in the hotel AV industry for over 12 years. Selling high speed internet for guests and meetings has just recently over the last 10 years become something that not only everyone "needs" but "wants" as well. The biggest reason that larger "luxury" hotels charge for internet access, is not because they can, but because the huge infrastructure it takes to maintain the internet connection, the bandwidth cost from providers like ATT who sell large 100, 200, up to gigabit or terabit internet backbones. Then add on the cost of the equipment that hotels need to install, maintain, man (with labor on site and at service centers to help their clients), and finally the biggest reason, is to install new updated equipment to keep up with the technology that needs the internet to support it.

Most guests a few years ago only brought in one laptop for business emails ect... but now most guests just don't have that one device any longer that they want to connect; laptops, ipads, phones, game systems, you name it.
To handle that much traffic in a hotel, takes a lot behind the scenes to make a guest happy and connected.

In smaller hotels, the wifi might be free, but you wont be able to watch a netflix movie on that connection if a lot of people are connected, they just don't have the bandwidth.

I think you need to re-look at your wifi information from a backbone perspective as well as a front end cost perspective.
Think about how much you pay for internet at home, then think how frustrated you are when it does not work, then add 400 or 500 more people (guests) to that, without the wifi cost and all the support the hotels provide behind the scenes, the internet in hotels would be slow and terrible.

thanks for reading this!
goldsounds

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