the market for hotels and hospitality is
a very fluid one I'm very competitive
offering consumers a wide choice right
from speciality historic Inns luxury
hotels down to more modest accommodation
the market is competitive BAPS for two
main reasons
first consumers have access to good
information on prices services and
quality and second there are few
barriers to entry it's relatively easy
to build a new hotel so how can the
hotel remain competitive and profitable
given so much competition well they can
compete successfully provided they make
the right decisions about their products
their investment and their pricing one
of the ways in which businesses make
good decisions is by using the knowledge
that they've gained from their customers
and using it often with hypothesis
testing a hotel may have a hunch a gut
feeling that an investment in new
facilities will enhance revenue and
profit but are they right but I've seen
so many people have great ideas but then
they need maybe some evidence to justify
a business case or they've got a gut
feel of something they know to be true
but if they want to persuade someone
else maybe they need to quantify so for
example we deal with clients every day
who wants to improve their customers
experiences in their hotel or in their
car dealership and it makes sense to
improve those customer experiences
because you're expecting the client to
that the customer to be more loyal to
recommend you more and as a consequence
you'll grow your business it makes
intuitive sense that if we can improve
customer experiences we're going to
improve profitability that makes sense
everyone feels that to be true if you're
going to make an investment strategy
based on that it makes sense to be able
to prove it in a more quantitative way
you find Best Western hotels all over
the world the hotels are independently
owned best Western is a franchise
one of these independent hotels is the
boulder in we compete with the other
triple a three diamond business oriented
hotels a bulk of our customers are
repeat guests and that has everything to
do with customer service they've got a
chain of a couple of hundred hotels in
the UK they have a thousand or so in the
US they've got hotels all around the
globe if you're going to upgrade your
hotels make some investments to improve
room facilities or even the building
facilities themselves where would you
put your investments in order to improve
their competitiveness they commissioned
research from merits to determine what
areas of investment would yield the
greatest competitive improvement merits
is a global research company that works
with clients in many industries clients
often come to merits with a hypothesis
something which they believe to be true
we want you to talk to this lot and find
out why there but in order to make
informed decisions they need some
tangible evidence most clients are doing
research to prove something they have a
gut feel about a relationship and they
want to demonstrate that that's
happening they are validating some
assumptions some hypotheses so merits
begins with a client's hypothesis and an
alternative hypothesis for instance the
client may believe that investing
enhancements to the room linens
flat-screen TVs bathroom fixtures or
facilities will enhance the
competitiveness of the hotel but will it
result in increased revenues and profits
yes we understand that people want this
and they want that and they want this
what is going to really help drive
additional hotel sales the hypothesis
would be that such enhancements will do
so the alternative hypothesis is that
investment may enhance the customers
experience but insufficiently to enhance
revenues and profits when we have our
hypothesis the one we think is correct
the
now hypothesis as it's called and our
alternative hypothesis how can we test
which is correct
this is Alcatraz where they kept some of
the most notorious criminals in the US
until the 1960s that's a principle of
justice that if someone is on trial
they're presumed to be innocent until
they're proved guilty so we have a
hypothesis that says this man is
innocent unless there's so much evidence
against him that we change our view and
say after all he's guilty now this is
the principle that we use for hypothesis
testing we set up a hypothesis and we
accept that hypothesis until the
evidence against it becomes so
overwhelming that we have to reject it
and we're trying to avoid two problems
we're trying to avoid a situation in
which we reject the hypothesis when it's
actually correct we accept the
hypothesis what is incorrect
if you like what we're trying to do is
to avoid a situation in which the guilty
is found innocent or where the innocent
is found guilty
so using that parallel let's have a look
at a test and see how we assemble
evidence to accept or reject the
hypothesis good afternoon my name is
Richard Maxted I'm calling from the
merits research um it's part of an
ongoing customer satisfaction research
we're looking to speak to people merits
designed a research project for Best
Western and interviewed customers from
Best Western and other hotel chains we
can use our analysis our statistics our
research to identify what guests Valley
and we can convert that to a certain
degree into a monetary value how much
are they likely to pay for the benefit
of having a
all the were a fitness suite we can look
at average occupancy rates we can look
at the average tariff that people are
paying for a room to find out the
potential profit that could be gained
through installing a fitness suite and
then we can talk with the owners of that
Hotel how much will it cost for you to
put that fitness suite in and then start
doing some return on investment analysis
to work out whether it's worthwhile
what's the potential return if we put in
a fitness suite compared to it since the
investment in its installation cost
their study revealed the subtle
differences between improvements that
customer wanted but didn't significantly
improve competitiveness and those that
did Princeton's customers cared greatly
about what's called triple sheeting
where beds have inner and outer sheets
that are laundered between guests the
perceived value added was twelve dollars
and forty seven cents per night large
screen TVs had a perceived value of
about twenty dollars a break-even
analysis showed that hotels could recoup
an investment in triple sheeting in 11
days and large flat-screen TVs in 102
days this information helped hotel
owners to make investment decisions but
hypothesis testing is not only used in a
business context for instance there are
published figures that suggest that
student debt is rising sharply education
is expensive and more and more countries
are shifting the burden of paying for
higher education to the individual
students how much do you worry about the
kind of debts you're building up
studying here I do worry about it I
think it's gonna hit home more when I
finish uni you go to university
you're pretty aware of how much debt
you're gonna have at the end of it it's
off like relying on my student loans and
maintenance grants they keep me going
through for three years really and now
hopefully and get out of it I'll start
paying it back but yeah it's been tough
as soon as you leave University
the place with letters from the bank
comes in India okay start paying back so
it's Australia life so yeah well I worry
letter quite a bit yeah I think it's a
sort of debt that you're gonna be paying
off for the next 30 odd years of your
life including the like the interest and
everything some people believe that
higher education should be subsidized by
the taxpayers and this is the case in
many European countries others believe
that since students get the benefit of
enhanced earnings with a degree they
should also pay the costs you're the
ones that are gaining out of it in terms
of a higher salary do you not think that
you're the ones ought to pay for it when
you put it that way yeah I don't think
there's a problem about student debt
generally I think students complain too
much about their debt on the average
people go to college do a heck of a lot
better than people don't go to college
in every country that we have any data
for if they're going to do that well why
should the state be paying for a why
shouldn't they have to pay for it take
out debt the way they do when they buy a
house and then pay it back over their
higher earnings so I think overall
that's fine for people from poorer
families it's also fine as long as we
enable them to borrow enough so that
they can finance their education
reasonably and you may want to think of
you know more sophisticated financial
instruments so you pay back not a fixed
amount but a fraction of your income up
to a certain point and then some
countries do things like that so you can
make it more sophisticated but that
students who are going to benefit from
their education should have to pay for
it
either through directly out of with
their parental their own money or all
right borrowing I think is absolutely
the right way for higher education to go
and to me it's really an equitable to
have the state pay for people who are
going to be among the higher income
numbers of society I mean why should the
lower income people be taxed to pay for
the hiring
people I know I couldn't I can't see the
sense of doing that the published
figures suggest that as a result
students have graduated with increased
dance but can we believe the figures one
way we could check the accuracy of the
figures would be to sample a group of
students and suppose we do this and find
that our sample of students has higher
debt than the published figures does
this mean that the figures are wrong we
can answer this question using
hypothesis testing here's the particular
problem that we'll solve using
hypothesis testing the data suggests
that student debt on leaving college or
university averages eighteen thousand
pounds we think it may be higher so we
interviewed a hundred students on
leaving University and found that the
mean average of that sample was nineteen
thousand five hundred now of course the
debt varied greatly between the students
in our sample and we subsequently
calculated that the standard deviation
of that sample was eight thousand pounds
is this evidence to suggest that
reported debt of 18,000 is understated
the first step in hypothesis testing is
to specify the null hypothesis H naught
and the alternative hypothesis H 1 H
naught is that mu the mean average
student debt is indeed equal to or less
than 18,000 pounds and H 1 that mu is
greater than 18,000
and we assume that H naught is true
unless we found strong evidence that H 1
the alternative hypothesis is correct
the second step is to select a
significance level alpha which is the
level of scrutiny used for rejecting or
accepting the hypothesis the
significance level shows the
significance the test will have in terms
of chance occurrence for instance if we
use a level of naught point zero five
five percent we're willing to accept a
hypothesis even though it has a five out
of a hundred chance of being wrong now
although the choice of significance
level is largely subjective the rule of
thumb is to use a five percent
significance level so that's what we'll
do here the third step is to calculate a
test statistic Z and to do this we use
the following formula the Z equals x bar
minus mu naught over Sigma over the
square root of n where X bar is the
sample mean mu naught is the originally
reported mean Sigma is the standard
deviation and n is the sample size
this gives us 19500 - eighteen thousand
over eight thousand divided by the
square root of a hundred
which is 1,500 over 800
which is 1.8 75
now the fourth step is to set the
rejection region to do this look at the
normal distribution diagram
here we have a one-tailed test we'll
only reject the null hypothesis if Z is
in the shaded region we won't reject it
if it's in the other tile where student
debt would appear to be less than
suggested by the official statistics we
need to put all of alpha in the
right-hand tile and we'll reject a null
hypothesis only if Z is greater than
1.96
the fifth and final step is to draw a
conclusion about our hypothesis 1.87 5
is less than 1.96 so zed is not in the
rejection region therefore we fail to
reject the null hypothesis we cannot
conclude that the official statistics
understate the problem of student debt
in terms of our analogy we declare the
prisoner still to be innocent we can't
be sure enough that he's guilty
now look again at the formula notice
that if our sample n was bigger or the
standard deviation of our sample Sigma
was smaller z might have been greater
than 1.96
you might try to find Zed
if Sigma had been 7,000 or alternatively
if the sample had been a hundred and
forty-four in each case your answer
should be greater than 1.96 and we would
then have rejected the null hypothesis
concluding that mean average student
debt really was greater than 18,000
pounds now think about the hotel chain
that we looked at
they thought that customers would pay
$20 a night on average for a large
flat-screen TV now they had a sample of
400 where x-bar was $25 and Sigma $10 so
try to use the values to test whether
the mean amount that they would be
willing to pay differs from what the
hotel chain thought but be careful
unlike the student debt example that we
solved this is a two-tailed test
when we ask what should be done about
student debt there are no universally
agreed right answers it's expensive
someone has to fund it subsidizing any
student involves redistributing income
is it right to do so
but if we understand the principles of
hypothesis testing we can at least see
the size of the problem and get some
idea of how reliable the data is I think
otherwise you're just going on gut field
but if you really want a robust measure
something defendable then statistics
becomes important
you