Your Shout: Jean-Pierre van der Rest, Leiden University, Netherlands

10 November 2004
Your Shout: Jean-Pierre van der Rest, Leiden University, Netherlands

During the past decade structural changes have taken place in the hospitality business environment, including domestic-market saturation, increased competition

worldwide and the proliferation of the internet and e-commerce. As a consequence, hotel groups are attempting to distinguish themselves from competition by creating customer value (ie, unique benefits to the guest). Hotels operate with a high proportion of fixed costs and relatively high contribution margins. The pricing policy of hotels is, therefore, one of the most critical factors determining profitability, because price tends to affect volume, and hence profit. In recent years the financial position of the industry has been challenged by a trend towards mergers and corporate affiliation across national and cultural borders. As a consequence, international pricing research will be of particular importance. In a changing business environment the need for correct pricing decisions cannot be overstated. Environmental pressures have made pricing more delicate, more complex and more crucial. When pricing errors are made there may be severe consumer and financial consequences. For this reason price has been called a "dangerously explosive variable". Pricing is an ongoing process, a strategic capability that includes both the establishment and alteration of prices. It requires the explicit combination of knowledge, skills, procedures, experience, intuition and… careful judgement. It involves discussion and negotiations between different business functions. As the international hotel industry invests in the creation of value, it should also invest in effective pricing practices that capitalise on customer value. It is, therefore, perplexing to see that much attention has focused on how hotels can create customer value, but little has been done to find out how they can successfully determine price. by Jean-Pierre van der Rest, lecturer in business economics and strategic marketing at Leiden University in the Netherlands
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