Does Discounting Work in the Lodging Industry?

Abstract

The central intent of this econometric case study analysis is to examine the relationship between discounting room rates and hotel financial performance. The study provides a theoretical framework that investigates the fundamentals of discounting and empirically assesses the efficacy of the discounting process in the lodging industry. The study adopts an error correction model to properly account for the dynamics of the industry. The results indicate that the variables may be modeled as an integrated process that are linked in the long run and also possess a short-term relationship. The research findings suggest that discounting works both in the short-term and the long-term only if the discount rate exhibits serial correlation or nonstationary tendencies.

Determinants of Hotel Property Prices

“…3 One of the issues debated in the hotel management literature involves the process of room rate 'discounting' during down markets. See Croes and Semrad (2012) for recent evidence and literature review. 4 STR defines these market segments into collections of brands know as chain scales.…”

Game theoretic pricing models in hotel revenue management: An equilibrium choice-based conjoint analysis approach

“…It seeks to make a beginning in connecting the (oligopoly) pricing literature with contemporary work in revenue management from the field of marketing science and operations research. This should introduce a new perspective to the long-lasting discussion on whether discounting in the lodging industry works (Abbey, 1983;Croes & Semrad, 2012;Enz, Canina, & Van der Rest, 2015;Hanks, Cross, & Noland, 1992, 2002Kimes, 2002, Van der Rest & Harris, 2008, and whether and to what extent differentiation can protect hotels from the pressure to reduce prices (Becerra, Santal o, & Silva, 2013).…”

The Impact of Discounting Room Rates on In-House Restaurant Sales

“…The service industry has the opportunity to enhance its revenues through the dynamic pricing of its perishable products according to seasonal demand (Chatwin, 2000). Revenue management systems rely on the accurate forecast of these perishable products when determining optimal prices that accommodate the dynamics of the industry (Croes & Semrad, 2012). There is substantial empirical literature to support the use of revenue management systems in the hotel industry.…”

“…Revenue management also assists managers in determining the highest price a consumer is willing to pay for a hotel room night, based on historical data that forecasts anticipated room demand (Brannas, Hellstrom, & Nordstrom, 2002). The goal of revenue management is to generate maximum revenue from existing room capacity through the use of different forecasting techniques that allow the hotel to optimize their demand mix to maximize revenue (Croes & Semrad, 2012). Although, it is not possible for a manager to have exact knowledge of how much room demand will fluctuate in response to a given change in room price or changes in market conditions, an accurate forecast can mitigate uncertainty about future performance and assist managers in making better decisions.…”