Aspects of Pricing Strategy

The art of field management has a critical and unexceptional strategy of regulating the outcomes of any profit making organization. Apparently, the strategies of pricing were a fundamental aspect in this research. Running a hotel relies significantly on the income that arises after delivering a service and renting rooms. According to a postulation made by Chen (2010), pricing is a critical tool of running and regulating the progress of a hotel. Chen argued that hotels depict fixed capacity, perishable inventory, fixed high costs, and minimal variable costs. For this reason, we can argue that optimum revenues and profits do not arise from cost-control. Therefore, effective use of pricing strategy is the quickest and most reliable path that hoteliers could follow to maximize profits and revenues. In fact, the previous discussion evaluated the effects of room cost and noted that cost has obsolete effects on revenue in the market. The changes of events and technology among other factor have altered the earlier rate of efficacy and performance strategies. Managers must strive to remain updated due to the continuous changes that the globe is encountering. According to Pride and Ferrell (2011), modern hotel managers have an obligation to pay particulate attention on flexibility, demand and competition. They recognized the negative fervency that revenue managers possess on hotels that fail to attend changes in economic aspects of supply and demand. However, managers in this research are equipped with knowledge and experience that art their performance remarkably. Variability was a critical factor of consideration that triggered hotel managers to set their prices in accordance to demand. Additionally, managers adopted a strategy to analyze the market to determine demand and supply. For instance, what would we expect if four hotels are being built beside a price making hotel? The hotels are likely to share the available customers. This would imply the there is reduced demand resulting from increase in supply. In such cases, the managers must be aware of this and regulate prices strategically to enjoy economies of scale related to hotel’s level of establishment. Additionally, the hotel must pay attention on improving customer’s loyalty. For instance, there could be some customers who are charged lower that the normal rates due to their loyalty. Earlier researchers had revealed the use of the strategy where customers are charged different prices for same types of rooms (Choi & Mattila, 2005). Cunningham and Froschl (1999) termed this strategy as discriminatory pricing. This research identified that this strategy is applied when customers book room earlier and/or are loyal to the hotel.

Researchers were able to research and stipulate that competing hotels possess a variety of similar traits in common (Tranter et al., 2008). The hotels initiate a price war that facilitates the competition. In this research, it is apparent that hotels reduce their prices to improve the occupancy. In fact, some hotels with low demand or located far from the city center offered high quality services and reduced their prices. In the center of demand, such as the city center, there are regulations that control prices to facilitate prevention of significantly low prices. For instance, it would not be expected that hotels will provide prices that are highly distinct. The results revealed that only a slight difference existed for the hotels with similar location. Unless for VIP individuals who could probably prefer to pay for costly rooms due to their social class, it is quite unlikely for customer to prefer costly hotels rather than cheaper hotels located at the same location and offering similar services. Economies of scale are vital factors that would make market entrance and establishment hard. For instance, what if there is a well established hotel capable of offering low prices in the streets of Riyadh. Probably, establishing hotels will not be able to meet the expenses of the hotel at such a price. Maybe the hotel will declare to take the risk of making losses in a bid to get market entrance. Similarly, the previous researches have provided this kind of idea where hotels undergo losses due to the presence of a price maker. The results of this research showed that hotels survive low profits when trying to regulate their prices in accordance to the price maker. Hotels located in the periphery of the city center reduced their prices and increased their expenditure on quality services and furniture. Contrary, some hotels within the city center did not possess offer valued furniture and maintenance. However, they were able to raise their prices far beyond the prices provided by the hotels in the periphery. According to Gurbuz (2011), hotels use this strategy to avoid excessive entrance to the market. Additionally, the hotels are able to minimize their rates to low levels that customers enjoy. Crane (2009) differentiated the customers who are price sensitive with those who considered the quality of services. Do we expect the hotels to have low maintenance due to high demand? Apparently, competition does not allow hotels to have inferior services. It is not expected that a customer will book a hotel with low rates of maintenance as compared to others with quality services located in the same location.

Demand and supply relates at different instances of the hotel’s proceedings. When the demand is high, there is a rise of prices in the market. This implies that the prices will rise for all hotels in accordance to demand. We can, therefore, state that price elasticity is practical to these hotels universally. For instance, high demand could lead to the rise of price by 10%. This would apply to all the hotels in the market. A drastic change of event is, however, likely to occur when the price making hotels receive 100% occupancy. At this point, the hotels might decide to take charge and complete control of the prices. Some hotels, at this instance, do not increase their prices any more. However, hotels that have empty room attain the capacity to increase their rates unconditionally at this point. These strategies align with Forgacs’ (2010) identification that change of prices relies on market information. This research has described the use of the same strategy in the hotels under study.

Demand changes triggers some strategies to regulate demand. According to O’ Connor and Murphy (2004), counter measure are initiated to cater for the changes in demand. For instance, a rise in the demand could result to the formation of intermediate third parties who improve the level of demand. Otherwise, high demand insights the hotels to deploy the third party intermediacy. It is expected that when demand is high, customers will be available to accommodate the hotels without the need to incur extra cost on third party websites. However, third parties are critical when demand is low to increase the occupancy and facilitate rises in prices. The hotels under this research had the acumen to disengage the use of third parties when demand is high.

Customer Management

Customers’ satisfaction is a vital element in the long term goals of a hotel (Wirtz et al., 2001). The use of YM that will discriminate between customers is widely of the mark. However, discrimination must not lead to dissatisfaction. What happens to the customer who pays less than other? It is apparent that those customers who encounter favors due to their loyalty and strategic booking knowledge are satisfied and appreciated. Apparently, we can assume that customer will have the fervency to return to the same hotels in a bid to receive lower prices. Probably, customers who appear for the first instance will learn about this difference in prices as offers. In fact, the research implied that most customers are able to learn the policies that regulate the pricing strategies. However, this does not imply that this discrimination is fully justified and appropriate. Conflicts are prevalent where customers realize that they are being charged different prices for the same product or service. It must be explained to customers in a coherent way to facilitate their understanding. We must recognize that customer have the tendency of feeling inferior and unappreciated for the first time of booking in case the differences arise due to loyalty. However, it should, also, be noted that the second booking will be more favored for the customer since s/he cannot choose other hotels due to the guaranteed recognition in the hotel. Previous researches described that the conflicts arise due to discriminatory pricing, demand-based pricing, and off-peak pricing (Kimes, 1994; Wirtz et al., 2001). The most humiliating factor is discrimination involving the use of ability to pay as the tool of initiating the different prices. Should a hotel rely on the ability to pay and acceptance as the tools of setting prices? What would happen after the customer realizes that s/he paid high than a fellow customer? According to Kimes (2004), the best strategy to cover this issue is providing education of YM to customers. However, hotels were not able to educate their customer on YM. They assume that customer will not speak about the prices of room while in the hotel. This assumption is depicted in the research of Mauri (2007) which dictated that adoption of marketing strategies, such as fenced pricing, will reduce the conflicts. This strategy depicts professionalism in the use of YM. It has been noted by Gurbuz (2011) that YM professionalism is reliant on satisfaction of the customer.

Variation of prices is another factor that alters the satisfaction of customer. Lockyer (2007) had noted that conflicts could arise as a result of distinct prices between consecutive days. The description made by Lockyer depicted a huge difference between prices of two consequent days. This is a possible cause of conflicts in a hotel. However, this research identified that booking warrants rooms with known prices. For instance, a customer is only able to book a room after paying. This guarantees the absence of conflicts related to prices variations for every day. However, if the customer wishes to stay longer than the booked time, s/he has to book again.

When applying overbooking in YM, a hotel’s management must pay attention and consider the factor that could lead to customer’s dissatisfaction. When customers book rooms, they give trust to the hotel that they are warranted a room at the time or day stated. Failure to provide the room would lead to a flat dissatisfaction of the customer (Mauri, 2007; Wirtz et al., 2001). Consequently, strict caution is vital to regulate the repercussion of applying overbooking in YM. However, hotels take the responsibilities to find another accommodation for the customer. It does not mean that the customer will be satisfied with this offer of another room. Maybe, the customer had personal reasons of booking the hotel. Therefore, YM takes the role of ensuring that overbooking does not lead to dissatisfaction when applied. In fact, YM could decide not to apply the strategy. However, there are consideration that a hotel must undertake before deciding to deploy this strategy. For instance, the hotel could fail to maximize its revenue due to these factors.

Fenced pricing is a key factor that could be utilized when dealing with customer conflicts (Mauri, 2007; Wirtz et al., 2001). This research was able to identify that segmentation is a vital factor to solve conflicts and dissatisfaction. It was noticed that hotels had the tendency to provide different prices for different rooms. They have a wide range of room types that accommodate people according to their needs and willingness to pay. This allows different prices for rooms and facilitates prevention of conflicts. However, this does not imply that customer did not apply the strategy price discrimination.

We cannot skip the use of CTA and MLOS application in YM. Customer, also, feel exempted and unappreciated when they come to book. Kimes (2002) postulated that length of stay could lead to discrimination. Saudi hotels depicted that customer who are to stay longer provide the hotels higher income with a single transaction. These hotels could, therefore, discriminate customers who are to stay for shorter periods and give priority to those who stay longer.

Policies of a hotel regulate the activities and the decision that a hotel undertakes. Customer management must lay its basis on policies. For instance, conflicts involving the higher price for some customer than others could be solved by providing the hotel policies on loyalty programs. Loyal customers are accorded special treatment (Noone & Renaghan, 2003). The hotels reduced prices and offered points to these customer. However, the most prevalent strategy involves the use of point allocation. Why use points instead of prices reduction? This strategy allows setting of similar prices to all customers. The appreciation is allocated as points which are changed in favor of the loyal customer. This solves the conflict that could arise due to pricing differences.

Quality services are vital and fundamental factors that satisfy the customer. Manager must be aware that quality services play a significant role to attract customers. For instance, uniqueness qualifies a hotel to be choice for customer without implementing price discrimination. Lockyer (2003) had identified that cleanliness is a crucial factor in implementing satisfaction. Also, Huang & Chiu (2006) found that services offered by a hotel have consequential effects on the customers’ loyalty.

How does a hotel know the needs of customers? A famous tool that was used to retrieve information and suggestion from customer was guest comment card (Trusov, Bucklin & Pauwells, 2009). This strategy is not used in the examined hotels. However, parallel strategies were incorporated to retrieve the information. For instance, managers identified the use of questionnaire and suggestion boxes to cater for customers’ satisfaction. In this way, the hotel management is able to identify the problems encountered by the customer and evaluate the services offered. These included furniture quality, comments on employees, comments on staff members, and prices suggestion among others.

Managers ought to have the acumen of determining what suits the customers when they have not made any suggestions. Healthy and positive relationships with customers guarantee repeat business (Wirtz, Theng, & Patterson, 2001). The research of Cherubini (1997) proved that these repeats do not happen when a customer fails to comment. The research showed that 4% of the customers who are dissatisfied present their suggestions to the management. This failure leads to the development of a negative attitude. This implies that the customer will not book a room with the hotel another time. In contrast, satisfaction facilitates repeats that imply that the customer have the fervency to continue purchasing the services.

Third Party Websites

Since the emergence of third party websites, the room rates were affected because of competition. They market hotels by displaying the prices and services offered on a screen. Customers are, therefore, able to compare the services and choose a hotel that is offering low prices, and/or those that meet the customer needs. This has affected the application of YM since it advocates maximizing rooms’ profits. Researchers identified that maximization of revenue and room rates have relationships with application of third party websites (Choi & Kimes, 2000). They incur high commissions and initiate a competitive environment that lead to low room rates. Demirciftci (2007) was right on the statement that third party websites lead to huge problems for hoteliers. Probably, this is why manager of some hotel refute the use of these websites. However, the survey performed by researchers revealed that business and tourists relied on third party websites to enact online buying. Additionally, the websites provide the customers with the ability to book earlier, fast and efficiently before arriving for their stay. It can be stipulated that the rise of these websites are only significant due to competition. Otherwise, a hotel must not use them if their competing opponents agree to avoid it.

The commissions inserted for the service incur extra cost for the room rates. Consequently, the room revenue is stretched by the commissions and competition (Demirciftci, 2007). Additionally, these websites does not allow a room for customer negotiation. Therefore, the customers have to pay the stated amount unconditionally. This research noted that hotels undergo a commission of about 15% for and However, in Saudi, most hotels did not rely on websites for booking. Instead, the hotels apply face to face or contact negotiations. Hotels try to forego the cost of selling their services through indirect intermediaries. Why could hotels forego these fast and efficient websites? The principles of YM are to increase revenue by the room rates. However, websites presents the information for all hotels and facilitate the ability of a customer to evaluate the best hotel. In so doing, the customer books a hotel in accordance to its representation in the websites. Additionally, they initiate competition for all hotels. However, some customers do not wave by the notice. They have the potential and need to gather for information available elsewhere. According to Carroll and Siguaw (2003), implementation of a persoannal websites was the best strategy to solve the issue of high commissions. This allows the removal of fees emanating from travel agents and global distribution systems. In fact, this research identified that most hotels in Saudi made a decision to implement these websites for advertisement and provision of other service. Consequently, these websites are able to provide enlightenment about the customer and even retain them. It is possible for a customer to study the structure and policies of a hotel before declaring to book. This could serve as a strategy to prevent conflicts and dissatisfaction associated to lack of knowledge.

Price competition is the main factor of competition for online buying (PhoCusWright Inc., 2006). Therefore, there is an increased tendency to reduce the prices due to competition. Unless there is a agreement to control internet based advertisement, this competition will only lead to distraction of proper management. Additionally, false information will lead to the introduction of many hotels into the market. When entrance to the market is easy, the supply will be high leading to depreciation of demand.

The productive nature of hotels is, however, under strong arguments that try to determine whether websites play a vital role in revenue generation. Toh et al. (2011) had tried to determine the effect of websites to the occupancy of a hotel. Their research found that 75 per cent of the online sales arose from websites, while about 15 percent arose from travel agent. However, this does not arise without undergoing a significant cost. The research performed by Schultz (2008) reported that a hotel had guaranteed to offer free accommodation twice plus a gift worth $100 to their loyal customers. What business is this? YM cannot uphold a competition that aims to deteriorate the market for the benefit of one hotel. However, the separated hotel will receive more customer than the competing parties who are unwilling to comply. Schultz (2008) determined this a s a misuse of yield management and misuse of website to deteriorate the market. It was pointed that the appropriate example to use could be free parking and/or free internet. It is quite wide of the mark to put no value to the services provided by a hotel. A room has the role to raise income from renting room. Therefore, it should maximize the revenue from that service and value the service they provide.

The application of third party website should be regulated and armed with tools to prevent misuse. Hoteliers must decide the right condition for providing services and the restrictions posed due to market stabilization. Otherwise, the introduction of these websites can have potential negative effects that could cause deterioration of the market which in turn lead to reduction of profits. In such cases the hotel might even fail to make any profit for the services that they provide. However, if an agreement to control the market and ensure genuineness for all hotels is published and enacted, these websites will a vital role in the control booking system.

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