All-inclusive holiday packages, tourist consumption and spending patterns at tourism destinations

1. Introduction

Profit-enhancing strategies in the hospitality industry have mainly focused on personalized room pricing schemes (Viglia and Abrate, 2019), intrinsic tourist resort characteristics, such as location, size and category (Abad et al., 2019) and social media management (Anagnostopoulou et al., 2019; Buhalis and Mamalakis, 2015). However, the profitability potential of in-destination tourist spending, categorized as pre-trip and in-destination spending (Kuokkanen, 2016; Legohérel and Wong, 2006), has thus far been largely overlooked. The profitability potential of in-destination spending is particularly relevant in the context of resorts that compared to traditional hotels provide a number of experiences (e.g. entertainment, shopping, wellness) beyond lodging (Calveras, 2019). In particular, resort guests tend to pursue activities available within rather than outside the resort, hence the importance of monitoring their in-destination spending and the related consumption patterns.

Generally, resorts provide all-inclusive holiday packages with a bundle of pre-paid services that typically include transportation, accommodation, meals and sightseeing, based on the idea of “leaving your wallet at home” (Zopiatis et al., 2020, p. 2). For suppliers, the use of bundling can increase cost-effectiveness (Farmaki et al., 2017), for consumers bundling provides convenience and a certain level of comfort once at the destination as well as reducing uncertainty over the overall costs (Repetti et al., 2015).

However, resort bundling strategies are challenging when scrutinizing tourists’ in-destination consumption patterns. First, in a theoretical perspective, consumers purchasing a bundle are less likely to clearly identify the cost-benefit relationship, as it is a one-to-many transaction, and they thus tend to under-consume a pre-paid bundle (Soman and Gourville, 2001; Prelec and Loewenstein, 1998). Second, as the completeness of the offer increases under bundling conditions, guests face fewer spending decisions once at the destination (Kuokkanen, 2016). This reduces disutility for tourists and thus enhances their willingness to spend more once at the destination (Kahneman and Tversky, 1979).

As individual price sensitivity plays a role in driving in-destination spending and the consumption patterns (Nicolau and Masiero, 2013; Nicolau, 2009), this study considers that the degree to which tourists under-consume a pre-paid bundle and their inclination for additional spending once at the destination depend on the resort category considered. Indeed, price-conscious consumers seek lower prices and their price tolerance threshold is lower (Rabbanee et al., 2022; Özyörük, 2022; Alford and Biswas, 2002). Resort category, measured by star ratings, is not only a trustworthy reference point to assess the overall quality of the service (Soler et al., 2019), but is also perceived as a key variable in determining room prices (Abrate et al., 2011; Schamel, 2012). Hence, price conscious consumers are expected to be most price sensitive, hence favoring lower star-rated resorts (Chua et al., 2015). Specifically, price conscious consumers “will look for alternatives that they find cheaper, more reasonable or adapted to their budget, e.g. changing the schedule of their trip, reducing the length of their trip, searching for cheaper hotels or finding other destinations with prices more adapted to their preferences” (Beerli-Palacio et al., 2020, p. 3). Therefore, in this study, we consider resort category as a proxy of the degree of price consciousness (high vs low).

Through a quasi-experiment conducted in two three-star resorts and one four-star resort situated in similar seaside destinations and managed by the same local group offering a standard range of services, we investigate guests’ in-destination consumption patterns according to differing degrees of price consciousness. Although tourists tend to under-consume bundled offers, the patterns of under-consumption differ depending on the resort category and the degree of price consciousness. Our findings indicate that the increase in consumption of bundled items is less pronounced for guests in the four-star resort compared to the three-star resorts after the inclusion of these items in the holiday package. However, guests at four-star resorts increase their consumption of items outside the bundle. As such, our study advocates enhancing the appeal of bundled offers for specific tourist segments (i.e. high vs low price-conscious) through analyzing demand behavior to design the appropriate bundling content and form (Sánchez-Lozano et al., 2021; Stremersch and Tellis, 2002).

2. Theoretical background and hypotheses development

Our conceptual model is illustrated in Figure 1. We examine the impact of different degrees of price consciousness on in-destination consumption patterns by focusing on the consumption of bundled items (pre-paid) and those outside the bundle (additional spending). We analyze this relationship in the context of resorts that traditionally adopt bundling strategies and provide guests with a complete holiday package. Bundling strategies encompass two key dimensions:

1. the focus of bundling, namely, the configuration of the content that creates added value; and

2. the form of bundling, whether pure or mixed (Stremersch and Tellis, 2002).

In so doing, this study advances current theoretical knowledge of how to leverage the focus and form of bundling according to different degrees of price consciousness and resort category.

Concerning the consumption of bundled items, some tourists are attracted by pre-paid holiday packages that include a broad variety of services at the destination (Calveras, 2019). In a theoretical perspective, consumers tend to under-consume items included in a bundle due to their difficulty to price each single item in the bundle. Soman and Gourville (2001) develop the notion of transaction decoupling, showing that when purchases are made under bundling conditions, consumers perceive a more tenuous association between the transaction costs and benefits. They suggest that in a one-to-one transaction, both the costs and benefits can be easily identified, while in a bundled purchase, costs are more difficult to recognize due to the intrinsic ambiguity in determining how much of the money invested finances each benefit. As consumers purchasing a bundle (in a one-to-many transaction) are less likely to clearly identify the cost-benefit link, they tend to under-consume a pre-paid service (Soman and Gourville, 2001).

Moreover, when payment and actual consumption are separated in time, as is usually the case for package holidays, purchasing in advance is considered an investment, while later consumption of pre-paid goods is perceived as free (Shafir and Thaler, 2006). In addition, the physical characteristics of a transaction matter, such as paying by credit card or cash, rendering consumers less sensitive to consuming the purchased items (Soman and Ahn, 2011).

Prior studies show that for price-conscious customers, the price paid is not only associated with economic benefits, but also psychological factors, such as the enjoyment associated with lower prices (Özyörük, 2022; Rabbanee et al., 2022; Eastman et al., 2021). Therefore, in this study, we postulate that the incentive to save money and the resulting positive emotions (e.g. delight, gratification) may weaken the tendency to under-consume a prepaid service for price-conscious consumers (i.e. staying at 3-star resorts), while this tendency may still occur when the degree of price consciousness is low (i.e. staying at 4-star resorts). Thus, we posit:

Prospect theory (Kahneman and Tversky, 1979) explains deviations from reference prices that consumers perceive as gains or losses. On average, individuals are loss averse, tending to avoid losses whenever possible. Concerning the consumption of items beyond the bundle, the psychological power of selling a bundle assumes that spending money creates disutility that implies a loss, but the marginal loss of spending is greatest for the initial amount of money expended (Kuokkanen, 2016). Moreover, in a bundled purchase, individuals commit to one spending decision only, thus lowering aggregate disutility compared to when items are purchased separately (Shoemaker, 2003). Thus, once the original decision to spend is confirmed, consumers appear more willing to purchase additional items, since the perceived marginal loss decreases.

In addition, selling a bundled package reduces the number of individual buying decisions once at the destination. Therefore, the overall disutility of in-destination spending diminishes as tourists face fewer decisions over expenditure once at the destination, thus encouraged to commit to additional spending (Cozzio et al., 2021; Kuokkanen, 2016). This effect is amplified by the unplanned nature of additional in-destination spending and its deriving hedonic consumption patterns (Botti and McGill, 2011). Holidays are perceived as legitimate opportunities to experience happiness and carefreeness (Gössling and Buckley, 2016), where unpredictable and ad-hoc decisions to purchase items for instant hedonic gratification are key drivers of in-destination consumption (Sameeni et al., 2022; Nguyen, 2016). Hedonic purchases, such as holidays, are feelings-based products categorized as emotional (Liu et al., 2022; Baltas et al., 2017). By definition, hedonic consumption is intrinsically motivated, inherently rewarding in itself and determined by the consumers’ desire for enjoyment and pleasure (Baltas et al., 2017; Holmqvist et al., 2020) through which they “maximize their positive feelings” (Shao and Li, 2021, p. 1252).

Consumers pursuing self-directed pleasure are committed to hedonic consumption comprising emotional benefits that are intrinsic by nature (Deb and Lomo-David, 2020; Vigneron and Johnson, 2004). Although seeking emotional pleasure aligned with the individual self is a common trait in the hedonic context of tourism consumption (Han et al., 2010; Pino et al., 2019), such tendency is more pronounced in settings where the degree of price consciousness is low (Katt and Meixner, 2020).

In addition, according to Brewer’s (1991) social identity theory, individuals can be grouped along a continuum of social inclusiveness and distinctiveness that ranges from uniqueness at one extreme (i.e. features that distinguish an individual from any other in the social context) to total submersion in the social context. Social integration is directly linked to the degree of inclusiveness, while self-distinctiveness is inversely related (Stets and Burke, 2000). Therefore, these two competing human needs – for inclusion and differentiation – occur to different extents according to the degree of price consciousness (high vs low). Therefore, as low price-conscious consumers tend to value the need for distinctiveness and self-identity (Rather and Camilleri, 2019; Kang et al., 2004), they are greatly committed to a hedonic consumption experience seeking self-pleasure compared to high price-conscious consumers.

As such, we posit that once at the destination, tourists engage in additional spending for hedonic consumption experiences according to their degree of price consciousness:

3. Data and method

The present study relies on data gathered through a quasi-experiment that involved three large seaside resorts where the four-star resort is in the upscale category, and the two three-star resorts are in the economy category. All three resorts are managed by the same hotel group and offer a full range of standardized services consisting of a resort rate (lodging and full board) and a mandatory resort fee (entertainment activities, beach service, sports facilities).

In addition, all three resorts are situated in very similar coastline locations (i.e. not centrally located and distant from well-known touristic spots) and differ in price levels and physical features (Sánchez-Lozano et al., 2021). Prices are on average 15% higher in the upscale resort with additional tangible attributes, such as larger bedrooms, a fitness room, Spa, secure parking and 24-hour reception.

The quasi-experiment focuses on analyzing differences in guests’ consumption patterns at the resort bars over a two-year period (summer 2018 and 2019) before and after the introduction of an all-inclusive soft drinks package. In the 2019 season, the mandatory resort fee was increased by €4 per day per person (over three years of age) due to the introduction of an all-inclusive soft drinks package that included a bundle of beverages (i.e. water, cola, lemonade, orange soda) that consumers could consume at the resort bars without restrictions. In contrast, guests had to pay in cash for the bundle of beverages at the resort bars in the 2018 season.

The basic billing features of the resorts were a pre-payment of 30% of the total price (resort rate + mandatory resort fee) payable via bank transfer during the booking phase. The remainder was due on the arrival and usually paid by credit card. All additional consumptions at the resort bars had to be paid in cash on departure.

We compared guests’ consumption at the resort bars over the two-year period before and after the introduction of the all-inclusive soft drinks package. The resort rates, guest composition, bar prices, bar offerings and bar staff did not change. Guests’ consumption data relates to 15 weeks each year (i.e. from the beginning of June until mid-September), corresponding to the operating periods of the three resorts. The resorts offer a fixed minimum stay of seven days with almost all arrivals on Sundays, with the weekly bar inventory providing the average consumption per person at the resort bars.

We conducted a Student’s t-test for independent samples to analyze the consumption data of around 8,000 upscale resort guests and 22,000 economy resort guests in each season. Around 75% of guests were adults (18 years or older) in the upscale resort, while in economy resorts adults accounted for around 65% of all guests. Overall, guests were mostly Italian and only 14% were returning customers. The Student’s t-test statistic is commonly used for experimental studies in the tourism field (Shafer and Zhang, 2013). Furthermore, to check the robustness of our results, we conducted a Mann–Whitney two-sample statistic test. This non-parametric test is used to examine the hypothesis that the two independent samples (8,000 upscale and 22,000 economy resort guests) are from populations with the same distribution (Wilcoxon, 1945; Mann and Whitney, 1947). We also performed a Kolmogorov–Smirnov test of the quality of distributions, another non-parametric test particularly suitable in our research context (Massey, 1951).

4. Results and discussion

Table 1 shows the descriptive statistics related to the key variables under study: soft drinks included in the bundle in 2019 (i.e. water, cola, lemonade, orange soda), and spirits, aperitifs and craft beers outside the bundle, hence additional expenses defined as hedonic and unplanned (Botti and McGill, 2011). The consumption of soft drinks included in the bundle increased in 2019 compared to 2018 when they had to be paid for extra, substantiating the fact that guests appreciated the introduction of the all-inclusive soft drinks package.

Table 2 shows that the increase in consumption of soft drinks included in the bundle is significantly greater in the economy resorts (€0.28 per person) than the upscale resort (€0.18 per person), thus supporting H1 positing that tourists in upscale resorts tend to under-consume pre-paid bundled items compared to tourists in economy resorts, despite the increase in the mandatory resort fee due to the introduction of the all-inclusive soft drinks package.

Table 3 shows the consumption of items outside the bundle, theoretically perceived as hedonic consumption experiences due to their immediately gratifying properties (Sameeni et al., 2022; Nguyen, 2016). The consumption of spirits, aperitifs and craft beers paid in cash once at the destination exemplifies ad-hoc and unplanned purchasing decisions that lead to additional spending exclusively driven by the desire to maximize enjoyment, pleasure and positive feelings.

In 2019, after the introduction of the soft drinks package, guests at the upscale resort significantly increased their consumption of spirits (€0.25 per person), aperitifs (€0.06 per person) and craft beers (€0.26 per person) compared to the economy resorts (spirits €0.13 per person, aperitifs €0.02 per person, craft beers €0.19 per person). This supports H2, positing that tourists in upscale resorts tend toward additional spending for hedonic consumption at the destination compared to tourists in economy resorts.

5. Conclusion