Price positioning plays a larger role in driving revpar than does occupancy for European hotels, according to a recent study titled “Competitive hotel pricing in Europe: An exploration of strategic positioning.”
Conducted by Cathy Enz, Linda Canina and Jean-Pierre van der Rest from Cornell University’s School for Hotel Administration, the study revealed that European hoteliers who maintained average rates above their competitive set generated higher revenue per available room, contradicting the long-standing belief that lowering rates will lead to more demand and better RevPAR. The research shows that although this practice yields higher occupancy, RevPAR normally suffers.
Researchers analyzed STR Global data over a 10-year period and the pricing strategies for more than 4,000 competitive hotels in Europe.
“We wanted to do a stream of research over an extended period of time to think about and get the industry to think about strategic pricing, not just tactical pricing,” said Enz, who is the Lewis G. Schaeneman Jr. Professor of Innovation and Dynamic Management at the School for Hotel Administration. “The thing we continue to find, even over a long period of time, is that ADR rather than occupancy is driving RevPAR. If you have prices lower than your competitive set, you’ll have an occupancy boost but a RevPAR drop.”
While the price positioning effect was stronger for branded hotels, the same held true for independent properties.
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