Keywords

discounting, error correction model, hotels, residuals, room rates

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.

Publication Date

8-1-2012

Original Citation

Croes, R. and Semrad, K. (2012). Discounting works. Tourism Economics 18(4), 769-780.

DOI

10.5367/te.2012.0138

Number of Pages

769-779

Document Type

Paper

Language

English

Source Title

Tourism Economics

Volume

18

Issue

4

Publication Version

Publisher's version

College

Rosen College of Hospitality Management

Location

Rosen College of Hospitality Management

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