20 research outputs found

    Competitive Hotel Pricing in Uncertain Times

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    This analysis of the pricing (ADR), demand (occupancy), and revenue (RevPAR) dynamics in the U.S. hotel industry for the period 2001 through 2007 demonstrates the potentially negative consequences of attempting to maintain market share by offering prices below those of direct competitors. This seven-year study examined the outcomes of pricing behavior on total rooms revenue and occupancy for hotels and their competitors in both bad times (2001-2003) and good (2004-2007). The results are the same in both periods. Hotels that offer average daily rates above those of their direct competitors experienced lower occupancies compared to those other hotels, but recorded higher relative RevPARs. For 67,008 hotel observations, this pattern of demand and revenue behavior was consistent for hotels in all market segments, from luxury to economy. Overall the results suggest that the best way to have better revenue performance than your competitors is to have higher average rates. The findings suggest that lodging demand may be inelastic in local markets, and hotel operators may wish to resist the pressure to undercut competitors when possible

    Why Discounting Doesn't Work: A Hotel Pricing Update

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    The long-running debate over whether hotels should discount room rates to boost financial performance becomes particularly contentious during tough economic times. The results reported in this study show that discounting relative to the competitive set does, in fact, fill a hotel, but the study also clearly shows that hotels in direct competition make more money when they maintain their price structure and do not discount to fill rooms. Data drawn from over 6,000 hotels between 2001 and 2003 show that hotels with lower prices relative to their competitive set captured market share from the competition, but did not gain higher RevPAR. Conversely, those with higher prices relative to their competitive set had lower occupancy and higher RevPAR. These results suggest a strategy of holding rates constant when competitors are discounting, or even raising prices to a small degree. By raising prices above the competition a hotel will lose occupancy but make up for that loss with higher RevPAR. By offering a lower relative price, on the other hand, a hotel will gain occupancy but its RevPAR performance will be lower than that of its competitive set. In particular, the data analyzed over the last three years, a difficult period for the industry, show that when a given hotel discounted its room rates to a greater degree than its competitive set, the result was decreased RevPAR compared to its competition (despite increased occupancy). The dynamics between price and occupancy remain quite stable from segment to segment, but the degree to which higher relative prices produce dramatic or gradual relative drops in occupancy does vary by segment. In addition, for 2003 small relative price increases did not enhance relative RevPAR for some segments.Canina_202004_20Why_20discounting.pdf: 544 downloads, before Aug. 1, 2020

    Why Discounting Doesn't Work: The Dynamics of Rising Occupancy and Falling Revenue among Competitors

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    The long-running debate over whether hotels should discount room rates to boost financial performance becomes particularly contentious during tough economic times. The results reported in this study show that discounting relative to the competitive set does, in fact, fill a hotel, but the study also clearly shows that hotels in direct competition make more money when they maintain their price structure and do not discount to fill rooms. Data drawn from over 6,000 hotels between 2001 and 2003 show that hotels with lower prices relative to their competitive set captured market share from the competition, but did not gain higher RevPAR. Conversely, those with higher prices relative to their competitive set had lower occupancy and higher RevPAR. These results suggest a strategy of holding rates constant when competitors are discounting, or even raising prices to a small degree. By raising prices above the competition a hotel will lose occupancy but make up for that loss with higher RevPAR. By offering a lower relative price, on the other hand, a hotel will gain occupancy but its RevPAR performance will be lower than that of its competitive set. In particular, the data analyzed over the last three years, a difficult period for the industry, show that when a given hotel discounted its room rates to a greater degree than its competitive set, the result was decreased RevPAR compared to its competition (despite increased occupancy). The dynamics between price and occupancy remain quite stable from segment to segment, but the degree to which higher relative prices produce dramatic or gradual relative drops in occupancy does vary by segment. In addition, for 2003 small relative price increases did not enhance relative RevPAR for some segments.Enz_2004_Why_discounting_doesnt_work.pdf: 807 downloads, before Aug. 1, 2020

    Strategic Pricing in European Hotels: 2006–2009

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    This paper examines the pricing, demand (occupancy), and revenue (RevPAR) dynamics for European hotels for the period 2006 through 2009. The results of this four-year study reveal that in both good times (2006–2007) and bad (2008–2009) hotels that offer average daily rates above those of their direct competitors have lower comparative occupancies but higher relative RevPARs. Based on 8,026 hotel observations, this pattern of demand and revenue behavior was consistent for hotels of various sizes and type of hotel management (i.e., chain-affiliated or independent), and held true in most market segments across all geographic regions of Europe. Occupancy and RevPAR volatility was greater in eastern and southern European hotels (compared to those in the north and west of Europe) and in the economy segment (as compared to higher level hotels). The results suggest that higher relative revenue performance is accomplished by hotels that offer higher rates than their competitors. It also suggests that key strategic factors such as hotel size and chain affiliation do not alter the pattern of findings. The results support the view that lodging demand may be inelastic in local European markets, a finding consistent with previous work in the U.S. and Asian markets. The results of this study appear to confirm the view that RevPAR is not stimulated by dropping competitive prices, and that hotel size and chain affiliation do not in meaningful ways alter the patterns found for the percentage difference in occupancy and RevPAR.Enz_202010_20Strategic_20pricing_20in_20European.pdf: 376 downloads, before Aug. 1, 2020
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