Revenue Management, Dynamic Pricing and Social Media In the Tourism Industry

Book Discription

The application of revenue management (RM) is changing more rapidly than ever before, driven as an important factor of the daily operation to keep prices competitive and to create real-time optimal pricing. In the age of the Internet and social media, negotiated fixed rates have become outmoded. Consumers now have access to online rate comparisons and real time reviews. They think more strategically when making purchasing decisions. Thus, they become more demanding.
This research provides an empirical study of revenue management and pricing with an emphasis given to the hospitality industry. The aim of this research is to examine the gap between the theoretical approach and the empirical analysis, the rationality between the implementation of dynamic pricing approaches and the impact on the customer. Furthermore, the research examines the perception
of consumers’ willingness to pay when using the Name-Your-Own-Price (NYOP) mechanism, which allows customers to have a greater influence on the amount they are prepared to pay. Instead of posting a price, the seller waits for a potential buyer’s offer, which he or she can either accept or reject. Finally, this study examines, whether the use of social media plays a decisive role in the online purchase environment used by the hospitality sector and the effect it has on a consumer’s willingness to pay. Accordingly, hotel revenue managers will be able to use the findings of this study to effectively plan their short-term, and long-term pricing strategies to generate a stronger revenue management performance for their property, namely to increase the RevPAR (revenue per available room). The research can be useful to businesses, as empirical data and tests were employed to determine what kind of impact the different pricing policies have on the long-term profit optimization. These practical and theoretical elements of the field reinforce each other‚ as well as to a large extent, the constructive interplay of theory and practice.

Book Information

Print Length

462 Pages

Language

English

Publication Date

June 4, 2016

Dimensions

6 x 0.39 x 9 inches

About The Author

About Apostolos Ampountolas

Apostolos Ampountolas, Ph.D., CQF, FHEA, joined the Boston University School of Hospitality Administration faculty after many accomplished years of teaching, research, and working for international hotels and travel companies. He holds a Ph.D. in Management from the University of Exeter in the UK, a Certificate of Quantitative Finance from the CQF Institute, and a Diploma in Accounting.

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Table Of Contents

This chapter provides a general introduction to the topic of revenue management and pricing strategies. It serves as a foundation for the rest of the thesis. It starts out with an explanation of revenue management, on what revenue management is and why it is needed, its history and the business conditions under which revenue management optimization and pricing is applied. It continues with a brief overview of the costumer’s behaviour when purchasing services. Finally, it presents the motivation behind and the objectives of the research, it then provides a chapter-by-chapter outline of thesis.
Writing a thesis on revenue management and pricing approaches, a subject that
has been established for more than 30 years, is a challenge.

This chapter sets out a critical review of the existing literature. It discusses the current literature and the extent it helps informs the research aims.
Furthermore, the chapter contributes to the theoretical framework of the study.
The researcher will present all literature developments with a focus on revenue management, whilst indicating its successful implementation in several industries. It will give an overview of the literature in various fields related to revenue management and dynamic pricing such as hotel revenue management literature, economic theory, consumer behaviour, marketing, social media & revenue management literature.
Revenue management started as a desperate strategy for struggling carriers faced with new competition from the low cost carriers as a result of deregulation (Cross, Higbie, and Cross, 2011). Previously, deregulation carriers were not
focused on the ‘consumer surplus’ (Cross
et al., 2011), the gap between a consumer’s value perception and the seller’s value perception (Parkin, Powell, and Matthews, 2005:101).

One established perception is that consumers purchase ‘emotionally’ and justify ‘intellectually’ (Baker, 2006:139). The development of the Internet has changed the way that consumers behave when planning, booking and during their
holiday as well as after their holidays providing feedback on positive and negative experiences. Technology has therefore affected the consumer booking experience, providing a real-time advantage of experiencing travel additionally, used for holiday planning as users generate content online. According to a study prepared for Google by Ipsos MediaCT, consumers begin by searching online in the travel process before deciding where or how they want to travel, on leisure purposes up to 66% and business up to 69% (Ipsos MediaCT/Google Travel, 2014). Moreover, market research in 2012 estimated 32% of hotel revenue is generated through online bookings (TravelClick.com – Hach, 2012) and other research by PhoCusWright, considers that in 2014 online booking justifies for 43% of total travel sales in America and 45% in Europe (Economist, 2014). Despite the effects of the economic downturn, booking volume is expected to grow and consumers booking through online channels will be paying around +3% higher rates than prior years (hotelmarketing.com, 2013).

As introduced in chapter one this research examines the application of revenue management at the operational level and the impact of the NYOP mechanism on the final consumer. This chapter describes the methods and techniques
used to examine the aims and objectives of the research, as well as the context in which it will be undertaken. The chapter explains the survey methodology and hypotheses, which were called upon to answer the research questions, outlined in the first chapter, in detail. It presents all methods used to investigate dynamic pricing and the impact of the Name Your Own Price model on the service industry. Furthermore, it discusses the data collection methodology, which, due to limiting assumptions, may restrict their applicability. Moreover, it discusses the complex and challenging assignment that stems from working with ‘realtime’ data associated with inside business areas. As Ryan (1995:16) notes, ‘the collection of data associated with consumer perception or satisfaction is a common challenge in tourism research’.

The chapter aim is to present the results from the first study which was the acceptance and impact of reference prices on a consumer’s use of the Name– Your–Own-Price model (NYOP). Following the literature review and methodology, this chapter provides the quantitative analysis of the study.
Furthermore, the chapter examines the first three objectives concerning the exposure and acceptance of the NYOP model. The analysis is conducted to examine objective one on consumer’s behavioural intentions on their willingness to pay (WTP) when using the NYOP method to book a hotel room,
objective two regarding the extent of different perceptions, using the NYOP model, its influence on consumers’ overall satisfaction and confidence when they purchase travel products. Including how price factors, reference prices,
and the number of bids reflect on utilizing the NYOP model, and objective three concerning whether or not the availability of posted reference prices impacts a consumer’s booking pattern when using the NYOP model (see Table 1-2 in the
Introduction Chapter).

This chapter discusses the second study results of the implementation of revenue management levels in hotels. Following the literature review and methodology, this chapter provides the quantitative analysis of the study. Hotels are using revenue management and pricing to increase profit by managing supply and demand. The reasoning behind revenue management implementation has changed for the hotel industry due to the multichannel environment. Therefore, hotel revenue managers should take into account the effect of several factors that challenge revenue management. Their goal is to improve profitability, by managing effectively except of capacity, as well as the effects of different pricing methods, competition, market segmentation, distribution channels, and the rise of social media.

This chapter discusses social media as a distribution channel that stimulates consumer behaviour using pricing as a tool to influence demand. It explores the motivational factors that determine the consumer’s adoption of social media and
their implementation in hotel revenue management operational level and pricing strategies. The rise of e-commerce has increased the use of distribution channels and as a result the real time pricing updates and consumer responses. This creates a need for hotels to implement online pricing strategies and to adapt and to operate rapidly there on. Therefore, hotel revenue managers should take into account the new way of thinking, namely that of interaction, responding to consumers’ preferences with a target in mind to
improve profitability, based on different pricing methods distributed through social media. Social media has moved pricing strategies into a new particularly challenging level. The aim of this chapter is to examine the relationships how
social media used as a distribution channel to encourage consumers to utilize direct bookings through pricing techniques when purchasing online travel products and how this impact revenue strategies and profitability, which represents the seventh objective of this research.

This chapter summarizes the main findings of the study. The results of the research were presented and discussed in detail in chapters five, six, and seven. This study has discussed and analysed the levels of revenue management (strategic and tactical) and the importance of pricing strategies, by empirically testing the impact of dynamic pricing and alternative pricing methods on the consumers’ willingness to pay. Pricing is both, an important corporate function and a field of academic study and will, within the role of revenue
management, remain a distinctive strategical advantage to the day-to-day hotel operation and effective revenue optimization. Some of this study’s findings confirmed the empirical implementation of revenue management strategies in a hospitality online environment while other findings in this study appear to contradict the findings of previous studies.