Pricing Strategies and their impact on Revenue Research Paper

Pricing Strategies and their impact on Revenue - Research Paper Example Revenue management has been a practice in the hotel industry for approximately 20 years (Anderson et al., 1994). Good revenue management results from a correlation of pricing and hotel occupancy. The study came to the conclusion that the hotels which maximized their revenue tended to have relatively higher prices and did not engage in price undercutting (Enz & Canina, 2008). Another study found that Asian market consumers did not seem to be influenced by discounts (Lomano, 2008). It may be argued that since these studies were conducted in varying Geographical regions and in different economic circumstances, they may offer practical insights that may be used to determine pricing in the hotel and hospitality industry (Varki & Colgate, 2001). There is however a shortage of research as regards the impact of pricing on individual hotel revenues. Markets have had relatively stable occupancy and a steady growth in revenue since the beginning of the century (O’Neil et al., 2006). The changing dynamics of the market through the provision of advertising through the internet and an increase in supply is certain to lead to increased competition. It is thus important that the hotel industry reevaluate their pricing models to reflect their changing dynamics if they are to maximize their revenue (O’Neil et al, 2006). This paper will study the impact of these changing dynamics on the hotel industry with specific focus on individual hotel case studies and other strategies and economic models. Purpose The defining purpose of this literature review is an analysis of available literature concerning pricing in a market context and how it affects hotel revenue and its management. The review studied the correlation between hotels charging relatively lower prices and client demand for rooms. The review further goes on to analyze literature with regard to the behavior of demand when a particular hotel decides to set higher prices than the competition. The review evaluates the influence of contextual pricing approaches on financial performance of the hotel; whether it is advantageous to charge higher or lower prices than rivals. The review additionally analyzed the response of clients concerning price strategies through the study of relative ADR. The literature review recommendations are made basing on the views of data studied from various journals and from the opinions of experts in the hospitality industry. The significance of customer satisfaction, loyalty, resulting from quality provision of service is linked to pricing and subsequently revenue management. Discussion The concept of revenue management has its roots in the mid 1980s airline industry (Belobaba, 2002). Due to its success in the airline industry it was subsequently adopted by the hospitality industry. Pricing remains an elemental part of revenue management as can be shown by a variety of literature on the subject. Since the concept was adopted from other service industries, its defin ition may tend to be different in each of the perspectives used (Stanford, 2003). Price Elasticity of Demand The price elasticity of demand is defined as the quantity of a good or service demanded relative to its price. When Price Elasticity of demand is greater than 1 it means that demand is influenced by prices and vice versa. Strobl et al. (2012) found that the hotel industry’s prices are influenced by demand. During periods of low demand, rooms are discounted and available to all. During periods of high demand, administration would apply revenue management and avail rooms only to customers who would maximize revenue. Revenue