Some Quick Notes On Competitive Pricing

I was prompted to write this post because of the latest Cornell Center for Hospitality Research news-mail that appeared in my Inbox this morning.  One of the articles in the email highlighted a CCHR research report done sometime last year (2009) that studied competitive pricing of hotels.  This article, "Competitive Pricing Decisions in Uncertain Times" by Cathy Enz, Linda Canina and Mark Lomano was voted the article of the year for 2009 in the Cornell Hospitality Quarterly (CQ).  You can click CHR: "Competitive Pricing Decisions in Uncertain Times" to get it.

I thought it timely to write this post since yesterday, I had a lively discussion with my team as they presented their strategies and tactics for 2010, and of course, given today's highly competitive environment, pricing is a question.  There is always downward pressure on prices during an economic downturn -- that's a fact, as business try to off-set weaker demand with higher volume.  Initially, one would think "Sure! Lower prices to attract more customers!"  And yet, we all know that in a price war, everyone suffers.  So, the question is, are you really better off or did you just give up revenue that was already yours? 

At its core, the article examines the elasticity of demand as it relates to the lodging industry.  What sets this study apart from others written on the subject is that it proposes looking at elasticity with respect to one's competitive set.  This approach makes a whole lot of sense because pricing moves affect the competitive set, and depending on your product type (ie. luxury, mid-market) the impact of pricing decisions would be different.

In the end, the idea is to maximize the bottom line, so understanding the impact of top line drivers is essential.  The next step is to understand variable and fixed costs, and there's another useful study that proposes a peek into that for an individual property, but that's another post.