Business Commons^™

Discounting Works In The Hotel Industry: A Structural Approach To Understanding Why, Robertico R. Croes, Kelly J. Semrad

Rosen Faculty Scholarship and Creative Works

This case study provides an empirical assessment of the relationship between discounting hotel room rates and hotel financial performance. The dynamics of the lodging industry are accounted for through the adoption of an error correction model. Recent research suggests that the use of discounting room rates may not be an effective pricing strategy as it results in increased occupancy rates at decreased average daily rates, thereby reducing a common financial performance indicator – revenue per available room (revPAR). The recommendation made to hotel managers, then, is to avoid discounting and instead adopt an average rate. This study generates opposing findings …