Hilton Midtown is among the popular hotels in New York. The hotel is the largest in the city, and one of the world's tallest. Despite being centrally managed by Hilton Worldwide, the hotel charges differently for rooms, depending on the platform one opts to use to make their booking. For instance, for a single room for a non-smoking client arriving at the hotel on a Friday night and leaving on Sunday morning most expensive on the hotel's website, and cheapest from travel agents. Whereas the same room goes for $640.42 directly on the hotel's website, Booking.com, Hotels.com, and Ctrip charge $600.90, $592.10, and $572.63 respectively.
Various platforms use different room pricing intelligence tools to determine costs. The intelligence tools focus on obtaining real-time access to metrics relating to rates management, track the rates of both market and competitors in a single compact view, and to set guidelines and alerts to changes in the market. The management metrics of interest are; present market needs, expressive data analytics, and reports that are both simple and meaningful (Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas, 2019). Also, the compact view should consider rates management, while the rules and alerts guide on making decisions relating to the pricing.
Online travel agents (OTAs) like the Hotels.com are third-party distribution means through which hotels enhance their popularity and revenue. According to Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas (2019), the OTAs are not tied to a single hotel, either independent or chain. Instead, they offer central digital points for hotels to display their services. Hence, their revenue source is multilateral, as opposed to a hotel showcasing its amenities on its site. OTAs offer global distribution of the hotels so that irrespective of where one is, they can still view and compare the rates and services each hotel provides before they make their decisions. However, smaller independent hotels do not enjoy the full potential of OTAs due to their relatively small geographical coverage. For hotels offering exceptional products and services, OTAs usually share ratings as per the guests' views and opinions, which further increase referrals and reservations for the hotels.
Another aspect that determines the pricing of hotel rooms is internal factors. Contrary to the law of demand where low prices attract more consumers of demand, some commodities perform better due to their high costs (Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas, 2019). For instance, Hilton Midtown rates high among the hotels in New York. People, therefore, perceive the quality of its services, coupled with its class, to be high. Consequently, they expect an equivalently high charge for the rooms. As an effect, the hotel charges high prices on its site, on the assumption that potential guests cannot be driven away by the high rates.
Guest factor also affects the pricing decisions. Mostly, guests who visit a hotel's website to book a room have made up their mind on which hotel they wish to stay. On the contrary, potential guests who visit agents' sites are commonly the ones who still shop around to find charges that best suit them. Also, even though Hilton Midtown charges high on its site, guests would still book the rooms, going by an assumption that some of the guests are on a rush to secure accommodation due to, for instance, lateness (Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas, 2019). Such guests tend to be price insensitive, and more willing to pay whatever rates the hotel charges.
Cost is yet another price determinant in setting room charges. Cost-based pricing strategy ideally entails successfully covering cost and making a profit at the same time. Business entrepreneurs consider production cost to be a sum of both fixed and variable expenses. As big as Hilton Midtown is, it incurs huge costs in forms of taxes, wages, insurance, utilities, sales and marketing, room amenities, and cleaning, for example. Such costs must be recovered from the sale of its rooms, implying higher charges. The agents, on the other hand, deal with multiple hotels, therefore source their revenue from many sources. Besides, they do not bear costs like maintaining hotel rooms. Therefore, when pricing the rooms on behalf of the hotels, they charge relatively low prices (Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas, 2019). Advantages of the cost strategy are; it is a simple, reasonable, and logical approach. It is also flexible since the prices can be adjusted to fit a prevailing market situation. However, the strategy is less competitive and ignores demand and competitors' pricing.
Competitor-based pricing, which is among the strategies commonly used by agents, require that the price set is within range compared to those that competitors in the same market charge. Usually, the agents ensure that their price comparison is relevant and closely related to other hotels that are closely related. Guests who visit the sites and make a preference in terms of class, therefore, do not find a wide disparity among the hotels that the agents provide, thereby boosting competition and revenue generation. It would, therefore, cost a guest little amount when they book a room from an agent's site than when they visit the hotel's site. The strategy is suitable for competitive sectors like the hotel industry. Since the agents strive to pool the largest number of guests, they compete among themselves as well as with the hotels, hence the low and competitive prices they charge (Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas, 2019). The influence of competitors can, however, lead to price wars, with a possible compromise on the profit margins. Striving to capture the largest share of the market can also push businesses to resort to alternative ways other than price, to attract guests.Trends and issues can also lead to agents charging prices that are lower than hotel sites. Since they handle an array of hotels on a single platform, agents are better placed to detect shifts in social, economic, and political conditions in local, regional, and global scales. Agents use the conditions to understand the needs of guests in terms of hotel room costs. Thus, to survive in the market, the brokers charge relatively low prices so that they can maintain or expand their market segment.
Conditions under which a hotel and agents operate also dictates the price of rooms. Whereas some agents allow for refunds when a guest cancels their stay, others retain the money upon withdrawal of a guest. Also, an agent or a hotel may also opt for no deposits on bookings nor cancellation fees (Sanchez-Perez, Illescas-Manzano, & Martinez-Puertas, 2019). When a booking platform provides for refunds, then they also charge higher to cushion then them against losses that may result out of such eventualities. Revenue management policy is also a condition that influences prices charged on a site. When a site targets an aggressive revenue management policy, then, it would display higher prices of the products. So, a website would show a price that is compatible with its policies, hence the variations.
Sanchez-Perez, M., Illescas-Manzano, M. D., & Martinez-Puertas, S. (2019). Modeling hotel room pricing: A multi-country analysis. International Journal of Hospitality Management, 79, 89-99. https://doi.org/10.1016/j.ijhm.2018.12.014.
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