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Strategic hotel pricing: Rate integrity key to maximize revenue



Posted on 12-08-2013.

The latest research from Cornell suggests, that if you want to maximize revenue, the best strategy is to maintain rate integrity, to price above the competitive set, because although you’ll take a hit in occupancy, it will be more than offset by a higher relative RevPar.

This article discusses the latest research from Cornell University examining whether stable competitive pricing positions yield better average annual RevPAR growth than do price shifts either upward or downward, as compared to competitors’ positions.

Cornell's latest study on hotel pricing continues to find over and over – in the US, in Europe, in Asia; across all customer segments; across different hotel sizes, whether they were or weren’t chain affiliated – that if you price lower than your competitive set, you will get a boost in occupancies – much more so in the US and Europe than in Asia – but ultimately you will see lower relative RevPar.

The researchers hypothesized that demand may be a lot less elastic than some believe, and that it might be more difficult to stimulate new demand. And, although there’s a possibility of stealing share, the research found that often the competition follows suit by dropping their price. And then you end up with a vicious cycle, a downward spiral of potentially detrimental price wars. So Cornell's studies continue to say, if you want to maximize revenue, the best strategy is to maintain rate integrity, to price above the competitive set, because although you’ll take a hit in occupancy, it will be more than offset by a higher relative RevPar.

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