MODULE NAME: Rooms Management
MODULE CODE: TH5BA390
DATE OF SUBMISSION: 12th October, 2018
STUDENT ID: 21386628
STUDENT ID: 21386628
RELATIONSHIP BETWEEN HOTEL ROOM PRICING,OCCUPANCY AND GUEST SATISFACTION
“Motivate them, train them, care about them, and make winners out of them…they’ll treat the customers right. And if customers are treated right, they’ll come back”-J Williard Marriott. Studies have shown that hotel room pricing, occupancy and guest satisfaction are all dependent on each other in order to earn revenue and profit for a hotel.
Pricing is a method used by many organizations to price their products and services.They price their products based on factors such as labour costs,advertising expenses and level of service and add on a certain percentage so that they can earn a profit. When the demand exceeds the supply, hotels charges higher price to increase their revenue.There are instances when a hotel will charge a higher price for a room because the occupancy percentage is high in a particular hotel (Oliver,1981). Price plays an important role while selecting the hotel because there are many competitive hotels that charge almost the same price for a particular category of room but the only aspect that varies among the hotels is the level of service offered by the hotels which in turn helps to gain guest satisfaction and repeat guest for a hotel thus helping the hotel to earn a higher revenue. It has been suggested by many researchers that guests judge the current price offered, on the basis of prices they have received before and hence expect a merely similar price in the future(Jacobson & Obermiller(1990), Briesch, Krishnamurthi, Mazumdar, & Raj, (1997)). However, it has been also believed by researchers that guests do not take into consideration the inflation when demanding for a particular commodity and expects the price quoted in previous stays(Bates & Gabor, 1986; Katona, 1975; Kemp, 1987, 1991).
Customer satisfaction is defined as the amount of satisfaction provided by the products and services of a company to the amount of repeat customers.It captures the condition of products or services that fulfills customers expectation in terms of quality and service in relation to price paid by the customers.One of the key factors of measuring how competitive a company is and firms success is Customer Satifaction(Bitner and Hubbert,1994). The new trend in today’s market is Customer Centric Marketing (CCM) as customers’ are the main focus in today’s world and an organization gives its 100% to deliver exceptional services to its customers in order to ensure repeat customers and earn profit and revenue. The aim of CCM is to identify the demands and lifestyle of its clients. Such a strategy helps in differentiation and creates brand value which in turn helps in creation of loyal customers and earn profits and therefore helps a company to earn a return on investment over the upcoming years( HYPERLINK “https://www-emeraldinsight-com.ezproxy.uwl.ac.uk/doi/full/10.1108/13522750710754308” Bolton,2004;Mello, 2002;Wright et al.,2002).
Occupancy is defined as the percentage of all rental units that are unavailable or rented at a specific time.Occupancy is one of the most widely used Key Performance Indicators(KPI) in the the hotel industry for revenue management as it highlights how much of accessible space in a hotel is actually being used.Occupancy Rate can be used alongside other KPI’s such as Average Daily Rate(ADR) and Revenue per Available Room(RevPAR).Customer attitude and booking habits are impacted by eWOM(electronic word of mouth)(Park et al., 2007; HYPERLINK “https://www-emeraldinsight-com.ezproxy.uwl.ac.uk/doi/full/10.1108/IJCHM-05-2015-0238” Doh and Hwang, 2009; HYPERLINK “https://www-emeraldinsight-com.ezproxy.uwl.ac.uk/doi/full/10.1108/IJCHM-05-2015-0238” Ladhari and Michaud, 2015;Book et al.,2015) as eWOM can have both good and bad reviews thus affecting a hotels occupancy.
Occupancy Rate(OCC),Average Daily Rate(ADR),and Room Revenue Per Available Room(RevPar) are used to evaluate and calculate the operational performance of hotels(O’Neill and Carlbäck,2011,Sainaghi and Baggio,2014). According to research conducted by Dr.Jonathan Barsky, he states that price always has an effect on guest satisfaction,and with the strong RevPar growth they have seen a decline in guest satisfaction scores in North America and Europe as compared to Asia which is less price sensitive with increasing rates and has a little effect on guest satisfaction.Occupancy is directly linked to guest satisfaction as during peak seasons employee attentiveness is less and their energy is spread over multiple guest
Elasticity of demand depends on Revenue Dynamics that is if the demand is price flexible, then a decrease in rates will result in rise in revenue.If the demand is price inflexible,then a fall in raes will result in decrease in revenue.Average Daily Rate indicates the average amount that the hotel earns per occupied room and it is very important in determining the profit of the hotel, In order to earn better revenue and higher profits a higher ADR is always better hence many hoteliers rely heavily on ADR for setting the price of their rooms. The two most important factors of revenue management is length of stay and price,and hoteliers need to balance the two factors equally in order to increase occupancy and RevPar. RevPar is an accurate indicator of occupancy and room rate,hence it is a better indicator of hotels profitability.
Value Pricing cannot be a substitute for maintaining high quality in order to satisfy customer demands(Hayes and Huffman 1995).It has been advised that the room rate should be increased in comparison with their competitors instead of lowering the rates as RevPAR compensates for the loss in occupancy(Enz et al,2009).It has been recognized that forecasting is very useful in revenue management and price and occupancy estimated by the revenue mnagenent systems maybe incorrect if not forecasted precisely(Weatherford ; Kimes,2003).Better appointment of staff, purchasing and formulation of budget can be achieved by accurately forecasting.
It has been recommended that the top level management should consider the effects of distribution channels on revenue management(Choi and Kimes,2002).In their research to judge the effects of distribution channels using revenue management forecasting and optimization techniques they found that room price is the key aspect in optimization keeping some factors in mind such as pricing,duration of stay and distribution channel.
In a study conducted by( HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S0278431916000104” l “bib0250” Piccoli and Dev,2012) they found that flash sales are broadly used in the hospitality sector,moreover,top level management adopt these techniques for numerous reasons such as increasing the revenue,increasing the occupancy,increasing the profits,branding,creating new customers and a need to sell a perishable product which in case of hotels is rooms.However this may significantly affect the hotel business as the large rebates offered on flash sale websites may lead to a fall in ADR and in turn will lead to a reduction in RevPar and PPOR(profit per occupied room) in a hotel.
As mentioned above Guest satisfaction depends on various factors such as pricing and level of occupancy.According to research done by (Oh,1999),guest satisfaction is based on a number of factors such working condition,employee attentiveness and so on and so forth.(Oh and Parks,1997) define that a positive attitude is formed when a product or service offers a better experience than expected and also defines that dis-satisfaction occurs when a product or service offered is below the expectation of the customer.Companies that concentrate more on guest satisfaction earn more profits than the other companies who neglect this factor(Gilbert and Veloutsou,2006). In today’s fast growing economic world customer satisfaction is the main focus of hospitality sectors( HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S027843191500095X” l “bib0395” Pine and Gilmore, 1998, HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S027843191500095X” l “bib0560” Wong,2013).In order to ensure and achieve loyal customers,competitive edge,brand value and brand image it is necessary to provide the guests with a experience a guests can remember even after their stay( HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S027843191500095X” l “bib0510” Stuart and Tax,2004; HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S027843191500095X” l “bib0165” Gentile et al.,2007; HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S027843191500095X” l “bib0495” So and King,2010;Han and Hwang,2015).
Hotel brands are unique as each brand offers a different experience to a guest each time they stay at a hotel,they also signify a promise to the guests. Take for example a brand like Hilton which offers 100 per cent satisfaction and comfort to its guest,if the guest is not satisfied during their stay they get a 100 per cent return on the guest room rate. Hotels constantly interact with their guests by means of e-mails, telephone calls,letters,etc in order to ensure repeat guest and show the guest that they feel cared for and the hotel brand should not disappoint them by breaking their promise in anyway.A brand is something that a guest feels attached to and good about(Vaid, 2003).Many hotels ensure guest satisfaction by asking them for feedback through feedback forms and comment cards to name a few .Common systems invite guests to complete the feedback form and leave it at the front office or in a guestroom at the time of checking out of the hotel(Woods et al.,2007).
Tourism and Hospitality scholars in their discussions in recent years have attempted to bring to light the fact that hotel room prices can be influenced in many ways by their site and situation attributes related to hotel location.(Latinopoulos,2018;Soler & Germar,2018).Site attributes refer to a hotels physical or structural factors,such as size,class of service,age of the hotel and the level of service and quality it offers,while situation attributes refer to hotels outdoor environmental characteristics,such as distance from the airport,transportation services in and around the hotels vicinity,tourist attractions in that particular place and majorly the competitive hotels around it(Zhang,Zhang Lu,Cheong,& Zhang,2011). The location where the hotel is situated plays a significant role in the success of an hotel because of the large amount of money invested in the construction of the hotel and also the amount gone into acquisition of the hotel( HYPERLINK “http://journals.sagepub.com.ezproxy.uwl.ac.uk/doi/full/10.1177/0047287517691153” Urtasun and Gutiérrez,2006; Owen and Daskin 1998).In order to get repeat and loyal customers hotels should provide services that match with the guest needs during high occupancy periods in order to compensate for the high prices set by hotels(Enz,Potter &Siguaw,1999).Hotels in good locations have proven to have larger accommodation demands,a good hotel performance as well as better guest satisfaction and a low rate of failure(Xiang and Krawczyk,2016).
Therefore, it is understood that room rates,occupancy and guest satisfaction are all co-related to each other.It has been proven and shown by The American Customer Satisfaction Index(ASCI),a scale that measures customer satisfaction of companies,that,a one point increase in guest satisfaction causes a increase in the market value of an average on one million dollars and three percent(Fornell,2001).The American Customer Satisfaction Index has also indicated that the increase in hotel room pricing over the past few years has lead to a decrease in guest satisfaction(Barta & Chaker,2001).Differential pricing is necessary in todays world as customers can find out the rates across various distribution channels.In order to enhance guest satisfaction trained staff members should always check on customer feedback and act upon the same by providing relevant suggestions and solutions to problems to ensure a customer is happy( HYPERLINK “https://www-sciencedirect-com.ezproxy.uwl.ac.uk/science/article/pii/S0261517716300188” l “bib58” Sotiriadis and van Zyl,2013)
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