6 September 2006

What a 5 star hotel has to do with the law of diminishing marginal utility

Well, you're going to think I'm crazy. See, all of August I was touring with a play that I'm acting in. We were lucky (at least that's what we thought we were) that ITC WelcomGroup was sponsoring us. So wherever we went we got to stay at 5 star ITC hotels. All of us were overjoyed. The thought of a month in 5 star luxury. How wrong we were!!!

By the second meal I was sick of the food. My staple diet after that was dal, subzi, roti, raita and chawal. And I would sit at the table and listen to others bitch about the food. "The steak tastes like they cooked a dog!!!". "This chicken is so underdone that I can still hear its heartbeat". all this while I was slowly getting sick of my vegetarian food as well. About halfway through the tour I had made up my mind that what I was eating was in fact plastic food. Something which doesn't taste like food but only looks like it.

Then there was the staff. You know, it's all well and fine to be nice to your guests, but just like the plastic food, the plastic smiles started to irk me no end. They were always too nice. Sometimes, I could swear that I saw them bitching about us when they thought we weren't looking. And the next minute the same people with would sweet talk us showing us the same sets of 32 (sometimes fewer) teeth that we had come to be so well acquainted with. I tell you, I actually started recognizing staff members by their teeth after a point.

Then there was this crazy ITC policy. Since they are part of WelcomGroup, anything and everything had to be prefixed by Welcom. So we were served WelcomCroissants at breakfast and WelcomKathis for snacks. We called WelcomAssictance for anything and everything. It got to a point when we started wondering why the bathrooms didn't have sashes around the toilet seats proclaiming WelComOde. Or why we weren't greeted on arrival by signs displaing WelcomWelcome (although above the hotel's name on the main signboard there was invariably 'WelcomHotel'). We almost expected a WelcomGoodbye when we checked out.

And then there was the pesky room service gang who would invariably land up at our WelcomDoors when we were either brushing with our WelcomBrushes, or showering in the WelcomShowers, or sleeping on our WelcomBeds (after applying scented oils to our temples which were, incedentally, labelled WelcomSleep). Or cleaning our bottoms with the WelcomToiletRoll (it took me quite a time to get used to using water once we got back).

And can you imagine what we had to go through without certain basic amenities that weren't part of the sponsorship deal? Like the net. Usage of the net costs anywhere between Rs. 300 and Rs. 600 per hour. A simple text only printout costs Rs. 50 per page. Can you imagine what I had to go through to write my personal statement for my rhodes application? I had to hunt for cybercafes outside the hotels while my tourmates were busy having fun on the beach!

Well, so basically I came to the conclusion that 5 stars are overrated. And I decided that it made no sense to actually pay what the hotel charged for the services it rendered.

But that got me wondering. If five stars can actually be so putting off, why are prople willing to pay so much to stay in them. Then the answer hit me. The law of diminishing marginal utility. It states that each successive (marginal) unit consumed of a good provided lesser satisfaction (utility) than the previous unit. It makes sense, think about it. It tells you that, for example, if you're really thirsty, you'll gulp down one glass of water and think that the satisfaction was better than sex. When you have the second glass, chances are that you'd prefer sex to the satisfaction gained from that glass. By the third, the satisfaction level decreases further. By the time you're on the tenth glass, you probably feel thet you'll puke if you have another sip.

Now say you had to pay for each glass of water. Say the price is Rs. 10 per glass. Would you drink the first glass? Probably yes. The satisfaction gained from that first glass is probably more than the dissatisfaction incurred by parting with Rs. 10. In other words, the satisfaction is worth more than Rs. 10. How many glasses would you drink? Simple. You'd keep drinking till the satisfaction gained is worth Rs. 10 or more. Once the satisfaction slips below Rs. 10 worth, you'd stop. Say this happens to you at the 5th glass. The 5th glass is worth exactly Rs. 10 to you. So you'd stop at 5. But if you were given water free, you'd go on till the the next glass gave you no satisfaction whatever, ie. till the tenth glass.

This is something like what happened to us at the hotels. We spent an entire month in 5 star hotels. So each successive day became less exciting and gave us less satisfaction than the previous day. Eventually, we felt that home food was better than hotel food. But the point is that we weren't charged for it. So we kept having the food. Well, actually, at times we preferred eating out (and paying for our food), showing that halfway through the tour, hotel food gave us no satisfaction.

This explains two things. Firstly, it explains why we felt that 5 stars were overrated. We were using services that, after a point, we felt were overpriced because we weren't prepared to pay the listed price for those services. Fact is we'd used those services so much that they'd stopped giving us the satisfaction levels that would have warranted the listed prices. Secondly, it explains why people actually pay and stay in such places. The simple explanation is that they do so for a few days at max. They only pay for hotel rooms as long as the satisfaction gained from staying at the hotel is worth more than the price they are charged. They don't stay after the law of diminishing marginal utility causes the satisfaction levels to fall below the price.

So are 5 star hotels actually overrated, or can basic economics explain why some people feel so? You decide...


  1. ROFLOL!
    WelComode! hehehehehehe that was good...
    How was the play?

  2. Oh, good. Getting pretty bored of it!!!

  3. OK here's a few thots:

    1. Most who stay in 5-stars are tourists with $ or executives on expense account. So, DMU might apply to the former, but the latter, I bet couldnt agree more with you - these places are a load of Wel,Come,Shit!

    2. 5-stars ARE rather expensive if you take into account real estate, cap investment, etc fat salaries, etc. And fact is their break-even often doesnt happen for years. So, their pricing is hardly a surprise! But things ARE changing - low-priced models like in the airlines world are making an appearance - I read someone's offering 5-star hotel rooms in downtown London at less than 25 pounds. So the old 'American' model is heading for a crash in any case, as things hot up. Unfortunately because demand for hotel rooms in India FAR outstrips supply, these guys are going to enjoy life a bit more...

  4. i am an economics freak and study in class 12. reading your blogs, how i wish i cud think and write like you. i mean i know all of that...law DMU(i've experienced it while eating successive units of golpuppa/paani-puri), it really needs an insight to apply and unserstand it on a daily basis. and as for...WelcomOde, WelcomWelcome....kudos to you!

  5. i'd say they are pretty overrated...especially some of them are...we decided that for my parents 25th anniversary we would have our very first 5 star family dinner... hotel of choice - The Taj Man Singh... pathetic food... and definitely over priced... i make better pasta than i had there... and my local Chawla Chicken has better butter chicken too!!!

    although i would recommend The Imperial Hotel for a nice evening meal....

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