Quality and Pricing in the Hotel Industry

Abstract

Quality is a price determinant in most products. However, establishment of a quality evaluation for the consumer is not an easy proposition. In the hospitality industry, fortunately, room quality evaluation and price information are readily available for consumers from published consumer guides. The Mobil Travel Guide is one of the more popular sources of hotel information available to consumers. The Mobil Travel Guide awards “stars” based on the level of quality their investigators deem appropriate. To investigate the relationship between quality and price in the hospitality industry, this study analyzes hotel managements' pricing behavior before and after a quality rating change by the Mobil Travel Guide. Data is gleaned from the Guide in several provinces and states in Canada and the United States from the relatively stable economic growth period of 1991 through 1999. The results reveal that hotel organizations raised prices before gaining a “star” and lowered prices before losing a “star.” The study concludes with a discussion of the implications of this pricing pattern.     

The effect of brand popularity statements on consumers’ purchase intentions: The role of instrumental attitudes toward the act

Marketers increasingly use brand popularity statements in attempts to influence consumers’ purchase decisions. Through the use of two experiments this research finds that a brand's popularity statement exerts a greater positive influence on the purchase intentions of consumers who possess less favorable instrumental attitudes toward the associated act (i.e. useless/foolish/harmful) than on purchase intentions of those consumers who have more favorable instrumental attitudes toward the act (i.e. useful/wise/beneficial). Further, this research also finds that a popularity statement for a brand of which society generally has a less favorable instrumental attitude toward the associated act (e.g. fast food consumption) has a larger positive influence on consumers’ purchase intent than does a popularity statement for a brand of which society generally has a more favorable instrumental attitude toward the associated act (e.g. dining at a casual theme restaurant). These findings suggest that brand popularity statements should be targeted at those consumers who might possess less favorable attitude toward the associated act or can be most effective in sectors in which consumer sentiment is generally low (e.g. the fast food sector).     

Pricing determinants in the hotel industry: Quantile regression analysis

Due to the skewed distribution of hotel prices, quantile regression provides a more flexible and complete characterization of the determinants of the hotel prices at the higher and lower tail of the distribution. This study applies quantile regression approach to investigate the major determinants of hotel room pricing strategies. The ordinary least square regression is also used for comparative purposes. The data are drawn from 58 international tourist hotels in Taiwan and average room rate (ARR) is used as the proxy of hotel room price. The results of OLS and quantile regression share common characteristics but also have differences in some aspects. The OLS results reveal that number of rooms, hotel age, market conditions and number of housekeeping staff per room are the main attributes of hotel room rate. The quantile regression results further demonstrate that room number and the number of housekeeping staff per guest room do not significantly influence hotel price at the low price quantile. Hotel age and market conditions are only significant determinants in high-price category. Additionally, for the high-priced quantile hotels, the proportion of foreign individual travellers positively and significantly influences room price. The empirical results can help hoteliers in shaping investment and pricing strategies.     

我国旅游景区门票多目标定价机制研究

传统产品定价研究大都从市场供需出发,以利润最大化来设置产品价格.然而景区门票价格是由市场因素和政策因素共同作用形成,景区门票定价不仅要满足景区经营方的利润最优目标,还应符合景区的生态承栽能力和社会福利目标.文章通过建立景区基于利润最优目标、生态承裁力目标和社会福利最优目标模型,证明了当追求利润最大化目标时,景区应该以产业利润最大化来制定门票价格；当景区生态承载能力低于产业利润最优的游客数量时,票价应该根据生态承栽人数来制定；当公共景区基于社会福利最优定价时,完全免费并不一定是社会福利的最优选择.在此基础上,对多目标定价机制进行比较分析,并结合杭州西湖景区案例对多目标门票定价机制进行了动态综合研究.     

Consumers’ evaluation of brand portfolios

This study explores how consumers evaluate lodging brand portfolios and shows the important role of brand-specific associations and brand portfolio effects in forming brand attitudes toward extended brands. The findings suggest, in general, that both brand-specific associations and brand portfolio affect consumers’ evaluations of extended brands. In addition, brand fit and familiarity are found to be important in consumers’ attitude formation in that they moderate attitude transferability between a brand portfolio and its extended brands. Managerial implications and directions for future research are discussed.     

Let your algorithm shine: The impact of algorithmic cues on consumer perceptions of price discrimination

How can hospitality and tourism firms reduce consumers’ perceptions of unfairness regarding their price discrimination practices? We propose that pricing algorithms, as advanced revenue management tools, can play a role. We demonstrated the effects of an algorithmic cue through a tweet analysis and four experiments. We found that informing consumers that the offered price is determined by algorithms mitigated their negative responses in the disadvantaged price discrimination context. Also, such algorithmic cue effects only occur when the algorithm is less anthropomorphic (vs. highly anthropomorphic or human). The positive impact of an algorithmic cue was identified not only when customers directly experienced disadvantaged price discrimination but also when they obtained the information from different channels. The results suggest hospitality and tourism firms that have implemented pricing algorithms in their revenue management can benefit from disclosing an algorithmic cue to customers.     

Effect of crowd wisdom on pricing in the asset-based sharing platform: An attribute substitution perspective

Technological advancement has led to the emergence of online platforms fueled by the sharing economy across various industries. This study focuses on Airbnb - a specific asset-based sharing platform in the hospitality industry. Applying the theory of attribute substitution, we explore the wisdom of the crowd manifested in online reviews, in impacting pricing. We found that online review valence and volume have a positive association with room price. Depending on the crowdedness of the location this association is stronger or weaker. Customers care more about room popularity (volume) in a certain area when the fast system of decision-making is triggered. When, however, the slow system is triggered, customers consider the crime rate of a location (valence). Findings show how environmental stimuli and customer reviews decide room price - a variable that was decided traditionally by companies (e.g., hotels). The research furthers our understanding on asset-based platforms in the sharing economy.     

Building the Destination Brand: An Empirical Comparison of Two Approaches

Destination brand strategies have in the main assumed that consumers actively seek and process information about potential destinations with their choice determined on the basis of a favorable attitude toward the destination. This article examines an alternative approach to destination branding, which relates to building the salience of the destination to increase the likelihood that the destination will be considered in purchase situations. The study examines the predictive validity of brand salience measures for a set of travel destinations compared with the predictive validity of traditional attitude-based measures. The results of the research provide empirical support for a salience approach to destination marketing for domestic tourism in Australia.     

How does hotel pricing influence guest satisfaction by the moderating influence of room occupancy?

Whether the product price increases customer satisfaction or rather decreases it has been actively debated for some time. A non-linear correlation between the hotel price and guest satisfaction, explored empirically in this paper, implies that the two phenomena are actually not inconsistent with one another At the low price level, room price and food and beverage (F&B) price leads to an increase in guest satisfaction whereas the high price level could have just the opposite effect The results suggests an inverse U shaped relationship between price level and guest satisfaction On the other hand, the room price guest satisfaction link could be affected by the moderating influence of room occupancy to be a U shaped function This paper reports results from a study on the influence of hotel pricing on guest satisfaction in the context of room products and F&B products in Taiwanese international tourist satisfaction It is found that the hotel pricing has a quadratic effect on guest satisfaction     

Brand personality and culture: The role of cultural differences on the impact of brand personality perceptions on tourists' visit intentions

Tourism destinations increasingly use brand-personification strategies to evoke favorable consumer reactions. These reactions, however, may hinge on cultural differences. This paper investigates the relationships among nation brand personality perceptions, consumer brand-self congruity, and the visit intention of a country as a tourism destination. Brand-self congruity is examined as a mediator of the relationship between brand personality perception and visit intention. Of Hofstede's cultural dimensions, individualism and uncertainty avoidance are the most relevant dimensions for brand-self congruity. Based on representative samples of consumers from five countries (Italy, the UK, Czech Republic, Poland, and Russia) and using Slovakia as a sample tourism destination, the effect of individualism and uncertainty avoidance on the relationship between brand self-congruity and visit intention is studied. Individualism and uncertainty avoidance moderate the congruity – visit intention relationship – but in a negative way, contrary to our expectations. Important implications are derived for both tourism research and destination management.     

Determinants of revenue per available room: Influential roles of average daily rate,demand, seasonality and yearly trend

Determining price per room to be charged to customers is an important decision to be taken by hotel management. Hotels frequently change their room rates based on the demand of room, occupancy rate, seasonal pattern, and strategies undertaken by other hotels on pricing. We formulated four models to analyse how various influencing variables, such as hotel price, demand, yearly trend and monthly seasonality influence hotel revenue per available room (RevPar). To analyse a case, we used monthly accommodation statistics for Sweden taken for Swedish Agency for Economic and Regional Growth and Statistics from January 2008 to July 2017. We carried out data analysis using both multiple regression and Multivariate Adaptive Regression Splines (MARS) model and found that application of MARS can help establishing a nonlinear relationship of RevPar with other determining variables in a superior way. We also proposed the possibility of developing a better forecasting model using MARS.     

Exploring consumers’ bidding results based on starting price,number of bidders and promotion programs

Online auctions are a core dynamic pricing mechanism that is now used widely in the tourism market, and consumers enjoy the exciting experience of bidding for products and services. The rapid development of the online auction market has lead scholars to call for more research into the factors that influence the results of such auctions and how they are related to consumers’ online bidding behavior. To this end, the current study designs a lab environment and mainly explores the influences of the start bidding price (US$0.33 versus US$60), the number of bidders and promotion programs (low price versus quality) on the results of online auctions of hotel coupons. The research results indicate the following market dynamics. (1) Regardless of whether there is a low or high start-bidding price, more bidders lead to higher end-prices, especially with high start-bidding prices. (2) When a seller provides a higher start-bidding price, the end-prices will be higher. (3) Different promotion programs result in different end-prices, especially when the product characteristics are integrated effectively with such programs. When hotel coupons are the main auction product, they are associated with high-quality leisure and lifestyle factors, thus indicating that the integration of high accommodation quality with quality promotion programs can attract consumers to join the bidding process and lead to higher end-prices. (4) Regardless of whether there is a low or high start-bidding price, winners will always report higher ratings regarding distributive fairness, procedural fairness and information fairness than will losers. The research results have important theoretical and practical implications, which are discussed in the conclusions.     

Good discounts earn good reviews in return? Effects of price promotion on online restaurant reviews

Online consumer reviews (OCRs) are valuable to consumers and sellers. Online price promotion is commonly used by local merchants to increase sales. However, knowledge of the differences in OCRs between consumers who received a discount and regular consumers is limited. This study investigates the effects of price discounts on restaurant OCRs by comparing the review rating and open-ended contents of OCRs from consumers who received a discount and regular consumers. The results show that the review rating is higher from consumers who received a discount, whereas the word count, image count, and diversity of review contents are higher from regular consumers. Regular consumers are more likely to mention product quality, environmental quality, service quality, geographic location, purchasing process, recommendation expression, and loyalty expression in OCRs, and there is no significant difference in the dimensions of price, cognitive attitude, and emotional attitude between the two groups.     

The exploration of hotel reference prices under dynamic pricing scenarios and different forms of competition

The reference price, used by consumers to evaluate market prices, has tremendous relevance in dynamic pricing. Reconciling current heterogeneous theories and studies on reference prices, this paper analyzes the impact of hotel price sequences on consumers’ reference prices through a lab and a field experiment. Experiment 1 tests the importance of retrospective price evaluations, while Experiment 2 evaluates the impact of three forms of competition: (i) simultaneous behavior, where firms adjust prices simultaneously; (ii) leader–follower behavior, where one firm acts as the leader; and (iii) independent behavior, where each player takes its rival's strategy as given and seeks to maximize its own profits. The results show that consumers decrease their reference price when competing hotels adjust their prices simultaneously. Relevant managerial implications are drawn for the hospitality industry, which is affected by the presence of online travel agencies that announce the daily rates offered by each competitor.     

An analysis of asymmetry in dynamic pricing of hospitality industry

The paper analyzes the influence of changing tourist arrival on various hotel performance measures related to prices, such as price charges per room, revenue per available room, occupancy rate, and total revenue using price dynamics of Oslo as a case. It also measured whether there is an asymmetric relation between the above performance measures in response to the increase and decrease of tourist arrival. While the presence of a significant long-run relationship between tourist arrival and revenue per available room, capacity utilization, and total revenue has been confirmed, it was found that the price per room does not have such a relationship, and it suggests that the price adjustments are made only on short-run considerations. Another interesting observation is that the magnitude of asymmetric influence is high for revenue per available room and occupancy rate when tourist arrival declines, compared to the corresponding magnitude when tourist arrival increases. These findings indicate that there lies a scope to improve the dynamic pricing model currently being followed.     

Star rating and corporate affiliation: their influence on room price and performance of hotels in Israel

The purpose of this paper is to ascertain whether and how star rating and corporate affiliation, as signals of quality, influence pricing decisions of hotels in Israel in various geographical locations, each with its specific market characteristics and during two different periods in which the business environment suffers from a crisis due to the political circumstances in the Middle East. The data suggests that the star-rating system, which is traditionally used to rate hotels’ quality, is a still stable and consistent predictor of room prices. However, in light of the increased usage of brand names in the Israeli industry, it was found that the ability to charge and receive a premium for the hotel corporate affiliation or brand name is not consistent. The analysis presents the case in which a premium for brand name is eroded by the influence of the crisis, by the level of corporate intensity in the region, and also by the relative strength of consumers in the different geographical locations.     

Tourists’ willingness to pay for an accommodation: The effect of eWOM and internal reference price

Understanding the determinants of consumers’ willingness to pay (WTP) is an important challenge especially for practitioners. This study evaluates the effect of external information (eWOM valence and volume) and internal information (internal reference price) on consumers’ WTP for an accommodation. The results of an online experiment (n = 766) show a direct effect of valence on WTP which is strengthened by both volume and the internal reference price. Consumers with high reference prices are more sensitive to the effect of an increase in valence. Moreover, internal reference price has a non-linear influence on WTP. The findings suggest the relevant role of eWOM as well as internal reference price in determining consumers’ WTP. The inclusion of these two variables in dynamic pricing strategies could lead to greater benefits for hospitality managers.     

Pricing in the sharing economy: a hedonic pricing model applied to Airbnb listings

ABSTRACT

This paper examines the impact of a variety of variables on the rates published for Airbnb listings in five large metropolitan areas in Canada. The researchers applied a hedonic pricing model to 15,716 Airbnb listings. As expected, the results show that physical characteristics, location, and host characteristics significantly impact price. Interestingly, more reviews are associated with a drop in price. This information is useful to hosts who are forming a pricing strategy for their listings as well as for Airbnb, who needs to support them. The paper raises important questions about pricing in the sharing economy and suggests avenues for future research in this area.     

Revisiting Attributes: How Important Is Green in the Consumer Selection of Hotel Rooms?

Consumers’ buying behavior is not always consistent with their positive attitude, particularly toward environmentally friendly products. In a survey of 197 travelers, the relative importance consumers ascribe to the attribute of green was assessed. Through a multi-methods study involving interviews, focus groups discussions, and forced-choice experiments that simulate market buying situation, it was found that consumers’ selection of hotel rooms is still much dictated by traditional choice factors. Through a conjoint analysis, it was found that consumers highly prioritized the price attribute. The green attribute was assigned a low relative importance of 4% among the respondents. Managerial and theoretical implications are discussed.