Discounting works in the hotel industry: a structural approach to understanding why

    Authors

    R. Croes;K. J. Semrad

    Comments

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    Abbreviated Journal Title

    Tour. Econ.

    Keywords

    hotels; discounting; room rates; residuals; error correction model; BEHAVIOR; Economics; Hospitality, Leisure, Sport & Tourism

    Abstract

    This case study provides an empirical assessment of the relationship between discounting hotel room rates and hotel financial performance. The dynamics of the lodging industry are accounted for through the adoption of an error correction model. Recent research suggests that the use of discounting room rates may not be an effective pricing strategy as it results in increased occupancy rates at decreased average daily rates, thereby reducing a common financial performance indicator - revenue per available room (revPAR). The recommendation made to hotel managers, then, is to avoid discounting and instead adopt an average rate. This study generates opposing findings and reveals that discounting may be a practical short-term pricing solution that may compensate for market disequilibria. The results suggest that using statistical residuals rather than room rate averages may more accurately forecast appropriate hotel room rates and balance supply and demand. Thus, the recommendation of adopting average room rates may provide incorrect implications for managers in the short run.

    Journal Title

    Tourism Economics

    Volume

    18

    Issue/Number

    4

    Publication Date

    1-1-2012

    Document Type

    Article

    Language

    English

    First Page

    769

    Last Page

    779

    WOS Identifier

    WOS:000307986600006

    ISSN

    1354-8166

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