The Pricing for Same-Day Arrival in The Hotel Industry

17th Jan 2018

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According to the IBIS World Industry Report (2017), the U.S. hotel industry generated a total revenue of $182.4 billion. It is projected to increase at an annualized rate of 2.5% to $206.5 billion over the five years to 2022.

  • The average room rate was $123.97 in 2016, an increase from $106.23 in 2012 and $101.70 in 2011 (Smith Travel Research, 2017).

Effective hotel room pricing is crucial for maximizing revenue. Hotels have unique characteristics that affect pricing decisions:

  • Perishable inventory
  • Relatively fixed capacity
  • Time-varied demand
  • Relatively high fixed costs (Kimes,1989)

A hotel’s price is one of the main factors influencing customers’ decisions, especially when they are using their mobile devices. Veteran customers often develop strategies to find the best deals based on their observation of room rates over time (Carrington,2013; Chen & Schwartz, 2008; Lee, Bai,&Murphy,2012).

Importance of Understanding Last-Minute Booking

Late booking has become a common concern in the hotel industry as more travelers are making spontaneous plans. However, there is still a lack of knowledge about hotels’ pricing strategies for last-minute bookings.

While researchers have studied various aspects of travelers’ last-minute behaviors such as information search and decision-making processes (e.g., Chen & Freimer, 2004; Chen & Schwartz, 2013; Jerath, Netessine, & Veeraraghavan, 2010), little attention has been given to understanding how hotels make pricing decisions specifically for last-minute bookings.

This gap in research highlights the need for more empirical studies on revenue management systems and their relationship with timing (Schwartz, 2008).

The Objective of This Study

The objective of this study was to examine the impact of different factors on pricing dynamics, specifically focusing on same-day and very late (after 11 PM) same-day arrival guests. These factors include:

  • Reservation channels
  • Price decision makers

By analyzing a random sample of 283 responses from a list of 3,000 hotels provided by Smith Travel Research, this study aimed to uncover patterns in hotels’ pricing strategies for same-day arrival guests.

While this study is exploratory in nature, it addresses a gap in the existing literature by providing empirical insights into how hotels actually price their rooms for last-minute bookings.

The findings from this study can be valuable for both hotel managers and researchers:

  1. Managers can gain a better understanding of effective pricing strategies for attracting same-day arrival guests.
  2. Researchers can use these findings as a starting point for developing models that empirically demonstrate what pricing strategies work best for this specific segment

The results of this study will enable scholars and managers to gain a better understanding of hotelspricing practices for same-day arrival guests, thus providing researchers with a starting point by providing information for developing further models or theories that could empirically demonstrate pricing strategies for same-day arrival guests. While the results should be useful for hotel chains, the independent hotel owner, and management team will most greatly benefit from this information to implementing pricing policies and practices to optimize revenue and profitability.