The Essay tackles how important is for Revenue Managers within the hospitality industry to correctly price the rooms accordingly to guest needs and market behaviour.
Each guest has a price. It is imperative to understand consumer
behaviour to offer the right price at the right time through the right
channel while monitoring the demand and adjusting rates.
Hayes and Miller (2011, p.6) stated that “Buyer seek a profit as much as a seller” therefore,
Revenue Managers (RM) within the Hospitality industry, should not just consider what is more
profitable for the business but analyse its consumers’ needs, as they give revenue through their
stay. Consequently, a challenge that can be found within this industry is revenue management,
where pricing should be done correctly, following a strategy that looks at several factors. Starting
from the customers’ desire, behaviour, and common characteristics, external and internal factors
of the business, supply, and demand, to forecasts which allow preparation for the future demand.
Nonetheless, everything should be communicated across the right distribution channels to
maximise revenue and enhance hotel occupancy.
Pricing is about establishing value through a certain price that transmits the value given to
customers (Jang and Moutinho, 2019). The ordinary price differing criteria are the physical
features regarding service provision such as facilities and equipment available; specific attributes
such as climate and local attraction, and reputation like star classification of the hotel and its brand
awareness (Abrate et al., 2012). As outlined by Hayes and Miller (2011, pp. 36-45) the price
product which directly relates to its cost is an old vision of whom might not have fully understood
the complexity of selling hospitality products to consumers in nowadays’ post-internet economy.
As also reviewed by Mitra (2020) a fixed pricing concept is nowadays being replaced by dynamic
pricing. Dynamic pricing is, therefore, widely used in the industry, because it allows adjusting the
price depending on the needs of the business. However, this strategy can be affected by several
factors which can be internal such as length of stay, type of room offered, service offered, and
strategy of the hotel or external like day of the week, seasonality, competitors, events, and
environmental aspects (Moro, et al., 2018). Although the sophistication of human endeavours and
ambient contexts express the complexity of hotel room pricing (Schütze, 2008), it is important that
the hotel pricing strategy, as mentioned by Revfine (2021), have a balance whether going high or
low while adjusting room rates. It is recommended during high demands period, despite the huge
requests, not to increase the price more than 50% of the normal cost, otherwise, guests will feel
that the company is taking advantage of them and the situation. Consequently, they will not come
back, or they will not make any good word of mouth about the hotel to friends and family. On the
other hand, when it comes to a special occasion such as an important football match, where guests
will not come back to the hotel anyway, pricing can then go higher as much as the revenue
managers will be able to make a profit from it. The same circumstances apply when the demand
is low and therefore the hotel needs to enhance the occupancy. In this case, it is recommended to
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, avoid lowering the price more than 60% otherwise guests will feel the difference and associate the
low price with low service quality, even though the low price is not necessarily linked to a poor-
quality service (Hayes and Miller 2011, pp. 13-16). Moreover, guests have perceived expectations
and when they book a room for a soaring price, and if they feel like they have paid too much, they
will search for everything to accomplish their idea and converge it in either a bad review or a
complaint, while with a very low price as explained in McGuire’s book, they will not book, and
the demand will decrease (Hyun and Perdue, 2017). Within those scenarios can be clearly
understood the importance of being able to understand and satisfy the customer along with its
complexity. Therefore, as emerged from Schütze’s (2008) study RM rather than just using dynamic
pricing, they also utilise customer-driven pricing dividing customers into segments depending on
their behaviour (e.g., leisure guests and business guests) and value-based pricing which is based on
the perceived value from the consumer. Accordingly, different pricing strategies are the most
powerful tool which can be used to adjust the demand and maximise the revenue (Xu, et al., 2017)
as through price variations, demand between available occupancy and occupancy can be rectified
to leverage the profit (Vives, et al. 2019). However, the decision making on the strategy, since it
has a lot of factors to be considered, depends upon the hotel and the management. For example, as
evaluated in the literature review (Schütze, 2008) the Intercontinental Group offer only six
different rates for their rooms, while Marriott International has introduced a single price policy.
RM should take into account what is beneficial for the business but most importantly analyse its
consumers’ behaviour as they are the ones who will buy the product. Consumer behaviour
represents the major research path in marketing as product selection and use are keys to business
success (Decrop and Woodside 2017, p. 18). As evaluated by Abrate et al.’s (2012) study, a key
ability in using revenue management techniques efficaciously is to segment customers based on
their behaviour, requests, characteristics, business limitations, and willingness to pay.
Segmentation allows getting the right target most effectively, which will increase the bookings
and therefore enhance the profitability of the business (Wirtz and Lovelock 2017, pp. 96-97).
Diverse market segments have different price elasticities. Price elasticity represents the measure
of the change in sales due to a price change. For example, with leisure guests, a small change in
rate can lead to a significant demand shift. While with business guests a small rate change will
cause a small demand shift because they generally are inelastic (Vives et al., 2019). This lead to
giving a full rate to whoever is willing to pay for it, whilst offering a discounted one to those who
look for it. In today society this process is extremely simplified thanks to the Internet, whereby
through cookies and preferences automatically people are selected and either ads will
automatically pop up on their smartphones or channels will show different rates accordingly with
the targeted person. Although segmentation has a great impact on increasing the occupancy and
bookings, these are also affected by other hotels’ characteristics such as perishability and capacity
limitation. However, this can be overcome by analysing supply and demand. Demand, in
hospitality, look at the customer desire to buy a certain product, the ability to buy a specific
product and the willingness to buy that product (Antonio, et al., 2017). The role of supply and
demand in this industry helps as a pricing guide. For example, where there is a pattern on the
unsold room in a specific period, the manager would then be able to adjust rates, do promotion,
prepare packaging, and consequently improve occupancy rates. This under a food and beverage
point of view can be seen within the Oetker Collection, at the Lanesborough Hotel whereby to
enhance their afternoon tea bookings they have made a collaboration with Peggy Porschen, which
is a renowned cakes patisserie in London (Oetker, 2021).
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