Competitive pricing in European hotels

Abstract

This chapter examines the pricing, demand (occupancy), and revenue per available room (RevPAR) dynamics of European hotels for the period 2006–2007. The importance of understanding the pricing behavior of direct competitors is critical to effective strategy formulation and meaningful industry analysis. Nevertheless, existing demand studies miss a critical link to local market dynamics. This study offers an alternative approach to examining competitive set pricing behavior that yields insights into the inelasticity of lodging demand. The results of this study of over 3,000 European hotel observations reveal that hotels that offered average daily rates (ADRs) above those of their direct competitors had lower comparative occupancies but higher relative RevPARs. The observed pattern of demand and revenue behavior was consistent for hotels in all market segments from luxury to economy. Country-specific analyses reveal a similar pattern, with more volatility in the results for hotels in Spain and Italy. Overall, the results suggest that the best way for a hotel to have higher revenue performance than its competitive group is to maintain higher rates. The results of this study support the position that hotel operators who resist pressures to undercut competitor's prices may be better served with higher revenues.

Citation

Enz, C.A. and Canina, L. (2010), "Competitive pricing in European hotels", Chen, J.S. (Ed.) Advances in Hospitality and Leisure (Advances in Hospitality and Leisure, Vol. 6), Emerald Group Publishing Limited, Leeds, pp. 3-25. https://doi.org/10.1108/S1745-3542(2010)0000006005