Cornell Study Reveals Revenue Management is Key for Hotels that Price Above the Competition

A report published by The Center for Hospitality Research at Cornell has found that hotels that price above their competitors are better revenue managers than those that offer rates below the competition.

The report, The Relationship Between Average Daily Rate and Occupancy for Hotels that Price Above and Below Their Competitive Sets, was co-written by Cornell Professors Cathy Enz, Ph.D., the Lewis G. Schaeneman Jr. Professor of Innovation and Dynamic Management, and Linda Canina, Ph.D.

The study analyzed data from over 6,000 hotels in all market segments. Although revenue management was nearly universal, hotels in certain market segments were less likely to adjust rates with occupancy and some simply did not do so.

When the sample was divided according to competitive pricing strategy, revenue management was a central strategy, but more aggressively used by some hotels. “We found hotels that price above their local competitors to be the most aggressive revenue managers, and economy hotels to be the least likely to adjust rates to fluctuations in demand,” stated Enz.

Key findings of the study:

• Most hotels in the U.S. use revenue management, regardless of their pricing strategy relative to their competitive set.
• Adjusting rate to fluctuations in demand is more likely to occur in hotels that price above their competitors. 
• Mid-market hotels were effective revenue managers, while many economy-segment properties maintained price stability regardless of demand.

“The report illustrates that maximizing revenue through the strategic use of pricing is a challenge for all hotel managers,” said Gary Thompson, Executive Director, The Center for Hospitality Research. “This report serves as a nice complement to our other reports on pricing, distribution, and revenue management.”

The .pdf report is available free of charge from the Cornell Center for Hospitality Research via the CHR website (.pdf file).

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