A ten-year study of pricing and revenues in over 4,000 European hotels finds that pricing strategy drives revenue, when hotels are compared to their competitive set.
The study, published by the Center for Hospitality Research (CHR), found that hotels that maintained average daily room rates (ADR) somewhat higher than the hotels in their competitive set recorded consistently higher revenue per available room (RevPAR), again compared with their competitor hotels.
“Competitive Hotel Pricing in Europe: An Exploration of Strategic Positioning,” by Cathy Enz, Linda Canina, and Jean-Pierre van der Rest, is available at no charge from the CHR, at the Cornell University School of Hotel Administration (SHA). The price positioning effect was stronger for branded hotels but was also found in independent properties. Additionally, contrary to the findings of a study of U.S. hotels, maintaining a consistent relative price over time (as compared to having a fluctuating price) did not significantly affect revenue performance for these European hotels, controlling for hotel type and location.
“Although this study does not directly measure price elasticity, our data support numerous other studies that have demonstrated the importance of pricing as a strategic positioning mechanism,” said Enz, who is the Lewis G. Schaeneman, Jr. Professor of Innovation and Dynamic Management at the SHA. “In this study we see the importance of strategic positioning in European hotels, just as we have seen it in U.S. properties. This does not rule out tactical pricing moves recommended by revenue management, but it argues for an overall focus on the pricing strategy. We just do not find support for a reactive pricing approach.”
Canina, an associate professor of finance at the SHA, added: “Hotels that offered prices lower than their competitive set did see stronger relative occupancy, as one might expect. However, higher occupancy percentages did not make up for the relatively lower ADR. That is the reason that hotels with relatively lower pricing also saw RevPAR lower than their competitors.”
“Our study included 37 European nations, and so we particularly focused on hotels in the Netherlands to see whether this price positioning held true in just one country,” said van der Rest, who is professor of strategic pricing and revenue management at Hotelschool The Hague. “In part, we chose the Netherlands because the hotels in that country had the highest occupancy percentages in this sample. We also found that the price positioning effect held true for properties located there.”