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 of rooms which can be sold each night. Excess capacity represents a loss of business, while undersold rooms represent a loss of revenue (the property could have charged more for the rooms that were rented for the night). Periods of shortages cannot be covered by selling additional rooms in the future (Whithiam, 1989, p. 10).
In order to maximize profits, hoteliers have developed specific products to meet the needs of particular niche markets. Some markets are served by all-suite hotels t...