UNLV Theses, Dissertations, Professional Papers, and Capstones 6-2010 Is premium pricing strategy a viable option to pursue higher revenue performance? A case study of relative pricing strategy in the Singapore lodging market Xiaorong Chen University of Nevada, Las Vegas Follow this and additional works at: https://digitalscholarship.unlv.edu/thesesdissertations Part of the Hospitality Administration and Management Commons, and the Marketing Commons Repository Citation Chen, Xiaorong, "Is premium pricing strategy a viable option to pursue higher revenue performance? A case study of relative pricing strategy in the Singapore lodging market" (2010). UNLV Theses, Dissertations, Professional Papers, and Capstones. 682. http://dx.doi.org/10.34917/1910240 This Professional Paper is protected by copyright and/or related rights. It has been brought to you by Digital Scholarship@UNLV with permission from the rights-holder(s). 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A case study of relative pricing strategy in the Singapore lodging market. by Xiaorong Chen Bachelor of Business Administration Macquarie University, Sydney, Australia 2006 A professional paper in partial fulfillment of the requirements for the Master of Hospitality Administration Department of Hotel Administration Graduate College University of Nevada, Las Vegas June 2010 2 Abstract Is premium pricing strategy a viable option to pursue high revenue performance? A case study of relative pricing strategy in the Singapore lodging market. by Xiarong Chen Dr. Billy Bai, Examination Committee Chair Associate Professor Tourism & Convention Administration Department, College of Hotel Administration University of Nevada, Las Vegas This is an exploratory research paper on how relative pricing affects an individual hotel’s revenue performance in the Singapore lodging market. First, it measures the REVPAR effects for both a discounting and premium pricing strategy at a local hotel against its competitive set. The findings conclude that a premium pricing strategy is a better way to improve REVPAR performance due to the inelastic nature of the demand curve for hotel rooms in the Singapore market. The findings also show that there is a price limit to a premium pricing strategy, beyond which the growth of REVPAR stagnates because customers were willing to seek for alternatives in the market. Second, the study concludes that pricing strategies have little impact on guest satisfaction levels or customer loyalty as long as service standards were maintained. In fact, customers were willing to tolerate increased pricing up to a limit for high standards of service. This paper therefore recommends that premium pricing be adopted as a strategy by mid-tier hotels to increase REVPAR performance in both good and bad economic times. 3 Table of Contents Abstract ............................................................................................................................. 2 Table of contents ............................................................................................................... 3 Acknowledgements ........................................................................................................... 5 Part one ............................................................................................................................. 6 Introduction ................................................................................................................. 6 Purpose ........................................................................................................................ 7 Justifications ................................................................................................................ 8 Constrains .................................................................................................................... 9 Part two ............................................................................................................................ 10 Introduction ................................................................................................................ 10 Literature review ........................................................................................................ 10 Price elasticity of demand .................................................................................... 11 Segmentation in relation to pricing strategies ...................................................... 12 Service quality and customer loyalty in relation to pricing strategies ................. 15 Pricing strategies overview .................................................................................. 17 Revenue performance measures .......................................................................... 20 Summary .................................................................................................................... 21 Part three …….................................................................................................................. 23 Introduction ……........................................................................................................ 23 Methodology ………………...................................................................................... 23 Sample and data collection....................................................................................23 Data validity...........................................................................................................24 Data analysis..........................................................................................................24 Results and discussions............................................................................................... 25 The effects of premium pricing strategy .............................................................. 28 The effects of discounting pricing strategy .......................................................... 29 Occupancy vs. pricing strategies .......................................................................... 29 REVPAR vs. pricing strategies ............................................................................ 30 Pricing strategies in relation to guest satisfaction and loyalty ............................. 30 Conclusions and recommendations ........................................................................... 34 Limitations and Future Research ............................................................................... 35 References …………........................................................................................................ 37 Appendixes ……….......................................................................................................... 44 4 List of Appendixes Appendix 1 A sample of GSTS survey ......................................................................... 44 Appendix 2 A sample GSTS report .............................................................................. 46 Appendix 3 STR competitive set guidelines ................................................................. 61 Appendix 4 Detailed source data .................................................................................. 62 5 Acknowledgement It would not have been possible to write this professional paper without the help and support of many people some of whom I would like to particularly mention here. I am truly grateful for the assistance and, support of my principal chair, Dr. Billy Bai. His advice and unsurpassed knowledge in marketing and revenue management has been truly invaluable. Dr Gail Sammons, my course instructor, was equally supportive both on academic and personal level. Not only had they provided me with the necessary guidance but their suggestions, advice and patience have made my writing of this professional paper more enjoyable and easier to accomplish I would like to thank Intercontinental Hotel Group for providing me the internship opportunity. During this period, I was fortunate to work for my immediate superior, Mr Shantha De Silva, IHG Singapore and Batam Cluster Area General Manager. He created opportunities for me to learn various aspects of a hotel management and operation in particular revenue management which has given me a detailed understanding of the area so relevant to this paper. I would like to acknowledge the academic and technical support of the University of Nevada, Las Vegas especially the dean of the Singapore campus, Dr. Andy Nazarechuk and his staff, particularly in the selection of my chair. The library facilities and computer facilities of the University have been indispensable. Last but not least, I have my family to thank for the support and understanding especially when I had to spend long hours on the job and the course. 6 Part one Introduction Revenue management has been practiced in the lodging industry for more than twenty years(Kimes; 1989; Lieberman, 1993).