Do you really know who your customers are?: A study of US retail hotel demand

Abstract

This study uses booking data from 28 US hotels to investigate the validity of two key assumptions in hotel revenue management: (1) customers who book later are willing to pay higher rates than customers who book earlier; and (2) demand is stronger during the week than on the weekend. Empirical results based on an analysis of booking curves, average paid rates and occupancy rates for group, restricted retail, unrestricted retail and negotiated demand segments challenge the validity of these assumptions. Based

Online hotel demand model and own-price elasticities: An empirical application in a mature resort destination

“…This result is different to the one found in the airline sector; where, for example, the leisure segment usually books earlier compared with the business segment, and the first segment is defined as the most sensitive, therefore, the typical price path is one where price increases along the booking horizon (Narangajavana et al, 2014;Talluri and van Ryzin, 2005). Lee et al (2011) find three possible explanations for this: (1) different capacity constraints, (2) greater differentiation and (3) a greater ability to differentiate customer experiences through amenities and service quality. Jacobs et al (2010) use an algorithm to optimize RM factors as the pricing structure of the different airline segments and the origin and destination pair scheduled capacity -the elasticities of demand are used in the model as an input -and indicate that elasticity values are often difficult to measure.…”

“…However, two additional factors should be considered: (1) prices during period A are 20-25% lower than those of period B, that is, the price of reference is different for the two periods. Thus, there is a bigger response by demand to price discounts in late reservations; and (2) as Lee et al (2011) point out, the assumption that customers who book later are willing to pay higher rates does not always hold true, due to the greater differentiation and higher ability to differentiate customer experience in the hotel industry when compared to the airline sector. In this instance, a similar outcome was observed with the elasticities obtained for the different the seasonal periods of stay, that is, the most elastic demand coincides with the peak in high season, and the prices are two or even three times higher than those in low season.…”

“…They observe that the price is higher in periods with lower price sensitivities, and that a lower price is set when the available inventory for the whole horizon is greater. Based on the assumption often considered in the RM hotel sector, according to which 'customers who book later are willing to pay higher rates', in an empirical analysis, Lee et al (2011) prove that rates, particularly rates for the retail segment, do not increase as the day of arrival approaches. This result is different to the one found in the airline sector; where, for example, the leisure segment usually books earlier compared with the business segment, and the first segment is defined as the most sensitive, therefore, the typical price path is one where price increases along the booking horizon (Narangajavana et al, 2014;Talluri and van Ryzin, 2005).…”

Dynamic Competition With Random Demand and Costless Search: A Theory of Price Posting

“…Second, average lowest available fares, as a function of days to departure, are fairly flat until the final two weeks, at which point prices rise more and more steeply. 29 A similar pattern arises in the hotel industry: Lee et al (2009) showed that normalized average prices are nearly independent of the number of days before arrival. Sweeting (2010) shows that in the market for baseball tickets, prices are decreasing as the game day approaches, providing a puzzling counterexample to our theory.…”

“…13 Finally, we allow for aggregate demand uncertainty, and consumers are negligible, justifying their price taking behavior. 14 On the empirical end, the literature that comes closest to studying the type of markets we describe involves the pricing of airline tickets (e.g., Escobari and Gan (2007) and Escobari (2009)) and hotel rooms (Lee, Garow, Higbie, and Keskinocak (2009)). We discuss this literature in Section 4, after presenting our theoretical results.…”