Price/Quality Relationship in the Hotel Industry

Developing an effective pricing strategy is a key element for any business. A company may have the best product on the market, an effective promotional plan and strong distribution, but if the pricing strategy is incorrect, the company can still founder. Some products are priced to be loss-leaders; that is, they serve to bring customers to the seller in order to generate sales on higher profit items. Other products are priced at the high end of their market in order to convey an image of quality, and perhaps are even reflective of a higher level of quality or craftsmanship associated with the product. Each industry, and even each market, has unique pricing strategies that help define the industry and which can be studied and analyzed. The hotel industry is unique in that its product (rooms) cannot be easily increased or decreased according to market demands, and the price for any given room can vary significantly based on the time of year, the type of guest and the popularity of the hotel(s location. This research examines the relationship of price and quality within the hotel industry, and considers the unique nature of the industry, the goals of pricing strategies overall, and the nature of quality within the hotel market.

The hospitality industry is a highly competitive industry which provides a unique combination of personal service and product to guests. Once built, a property's inventory is largely fixed: there are a given number

e for their product which enables them to make a profit, and the type of long-term pricing policy that they want to pursue. Different product lines can have different pricing structures associated with them, and many industries have seasonal factors which affect demand, supply and pricing. In most business, the product life cycle is a key factor in pricing. Products which are in the early stages may be priced so that companies can take advantage of having relatively little competition. The revenues generated from these stages can be used to fuel promotion and additional research and development, and help companies establish their products and their presence in the market. As the market matures and more competitors enter, prices generally drop as companies seek to expand their market share. During market maturity, the market approaches saturation and price reductions no longer expand sales. During market decline, price reductions again occur as different companies clear out stocks and discontinue the product (Cundiff, Still, & Govoni, 1980, p. 310). Competing on a nonprice basis depends not only on the amount of product differentiation, but also on its relative importance to prospective buyers. Customers who consider product