Abstract
Emerging price optimization models systematically incorporate competitor price information into the derivation of optimal price points. While consideration of competitor pricing at this tactical level is essential to maximizing short-term revenues, the long-term impact of competitive price positioning on revenue performance should not be overlooked. This study examines the effect of two key dimensions of strategic price positioning – relative price position and relative price fluctuation – on the revenue performance of 6998 US hotels over an 11-year period. It finds that revenue performance is strongest for hotels that price higher than the competition and maintain a consistent relative price over time. Implications for revenue management practitioners are discussed.
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Notes
Rather than examine technical efficiency in terms of physical inputs and outputs as in previous studies (for example, Alam and Sickles, 2000), Alam et al (2001) looked at oligopolistic pricing behavior as measured by means and distributions of sustained non-marginal cost pricing policies.
Transaction utility is the perceived value associated with getting a good deal.
STR's location segments are defined as follows: Urban: A densely populated area in a large metropolitan area (for example, Atlanta, Boston); Suburban: Suburbs of metropolitan markets (for example, Sags Harbor and White Plains, New York, near New York City); Airport: Hotels in close proximity of an airport that primarily serve demand from airport traffic; Interstate/motorway: Hotels in close proximity of major highways, motorways or other major roads whose primary source of business is through passerby travel; Resort: Any hotel located in a resort area or market where a significant source of business is derived from leisure/destination travel (for example, Orlando, Lake Tahoe, Daytona Beach); Small Metro/Town: Areas with either smaller population or limited services, in remote locations, populated with less than 150 000 people.
STR defines five categories within metro markets – Luxury: top 15 per cent average room rates; Upscale: next 15 per cent average room rates; Midscale: middle 30 per cent average room rates; Economy: next 20 per cent average room rates; Budget: lowest 20 per cent average room rates. In rural or non-metro STR markets, the luxury and upscale segments are collapsed into a single upscale segment to form four price segment categories – Upscale: top 30 per cent average room rates; Midscale: next 30 per cent average room rates; Economy: next 20 per cent average room rates; Budget: lowest 20 per cent average room rates.
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Noone, B., Canina, L. & Enz, C. Strategic price positioning for revenue management: The effects of relative price position and fluctuation on performance. J Revenue Pricing Manag 12, 207–220 (2013). https://doi.org/10.1057/rpm.2012.48
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DOI: https://doi.org/10.1057/rpm.2012.48