05. Do We Discount or Not?
(l.) Linda Canina, (r.) Cathy Enz
Linda Canina and Cathy A. Enz, Hotel Management, determined that revenue is managed more closely by hotels that price above their competitive set than by those that price below their competitive set. They found no differences during economic downturns or rebounds in the lodging industry. This observation held true, even as the economic situation of the industry first deteriorated and then improved markedly in the course of the study, from 2001 through 2005. The degree of revenue management—the correlation between average daily rate and occupancy—however, varied across market price segments. Within each price segment, the degree of revenue management was greater for hotels that performed better than their competitors. This offers empirical evidence that revenue management strategies are more prevalent in higher-performing hotels.
In another study, the researchers found that hotels resisting the temptation to discount were more likely to come out ahead, regardless of economic downturns or upturns. These hotels were skilled at knowing when to raise or lower occupancy rates to suit demand. Hotels that charge rates above their competitors were better at pricing rooms in response to demand in good and bad times. Hotels’ degree of skill at balancing price and demand varied, depending on their place in the economy, midmarket, or luxury segments.