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An Empirical Study of Online Pricing Practices for Hong Kong Hotels

An Empirical Study of Online Pricing Practices for Hong Kong Hotels. a Angie Tso and b Rob Law a angie_tso@yahoo.com.hk Hotel Miramar, Hong Kong b hmroblaw@polyu.edu.hk School of Hotel & Tourism Management, The Hong Kong Polytechnic University, Hong Kong. Organization of Presentation.

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An Empirical Study of Online Pricing Practices for Hong Kong Hotels

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  1. An Empirical Study of Online Pricing Practices for Hong Kong Hotels aAngie Tso and bRob Law aangie_tso@yahoo.com.hk Hotel Miramar, Hong Kong bhmroblaw@polyu.edu.hk School of Hotel & Tourism Management, The Hong Kong Polytechnic University, Hong Kong

  2. Organization of Presentation • Introduction: Research Question and Objectives • Literature Review: Internet Distribution Channels and Online Pricing Practices of the Hotel Industry • Methodology: The Procedure of Selecting Distribution Channels and Hotels, Data Collection, and Limitations • Findings and Discussion • Conclusions and Implications ENTER 2005 Research Track

  3. Introduction Nature of the product: intangible and perishable Hotels are to maximum revenue Strong Price War: e.g. TravelWeb and Hotels.com Hotels Internet Distribution Channels: global approach, convenient and efficient, ease to use Problem: Customers are confused and overwhelmed by variety of Internet Distribution Channels and price offerings Emergence of different Internet Distribution Channels ENTER 2005 Research Track

  4. Introduction • Most prior studies only examined hotel online pricing in the U.S. and Europe • Hong Kong is a leading tourist destination in Asia - HK was ranked eighth in the world in terms of income from tourism (Information Service Department, 2000). - Number of hotels will increase from 97 hotels in 2003 to 117 hotels in 2006 (HKTB, 2003). Sources: Information Services Department (2000). Tourism: Now and Then. Hong Kong Tourism Board (2003). Hotel Supply Situation – No.2, 2003. ENTER 2005 Research Track

  5. Introduction • Customers’ perspective: Searching reliable online distribution channels that offer the best price practice. • Hoteliers’ perspective: Need more clear understanding on online pricing practices of their products and services. • Pricing practice: is defined as hotel room rates at a specific time period. • Research question: What is the online price practice of hotels in Hong Kong? ENTER 2005 Research Track

  6. Objectives • To identify the key online distribution channels for the Hong Kong hotel industry • To develop an approach to evaluate the online pricing practices of different distribution channels • To compare the online pricing practices among different categories of Hong Kong hotels • To offer implications for hoteliers to improve their online pricing practices ENTER 2005 Research Track

  7. Literature Review • Distribution Channels: • One of the most critical elements in marketing. • Defined as a mechanism that provides sufficient information to the right people at right time and in the right place to allow a purchase decision to be made. • Internet Distribution Channels: • Hoteliers: Reduce the operation costs. • Customers: Instant access travel information, confirmation of travel bookings, availability of online pricing comparison, potential of securing lower price on product. ENTER 2005 Research Track

  8. Literature Review Types of Internet Distribution Channels • Hotels’ own websites and intermediary websites • PhoCusWright (2003) indicated that 53% of Internet booking was from hotels’ own websites and 47% was through intermediary websites. • Hotels’ websites are owned and managed directly by hotels; Intermediary websites are third party connections (e.g. GDSs, travel agency website, etc.) • Starkov (2003) classified intermediary websites into three types: merchant model (e.g. Hotels.com), commissionable model (e.g. Expedia & Travelocity), opaque site (Priceline.com). • In this study: Direct v.s. Indirect online distribution channels ENTER 2005 Research Track

  9. Literature Review Online Pricing Practice of the Hotel Industry • Crotts et al. (2000) stated that contemporary channels not only distribute tourism products, but also influence and determine the price by assessing real-time demand and supply. • There was a perception among consumers that they could get good value/cheaper price of products via the Internet. • The increasing number of interconnectivities and competitions among the online distribution channels drive down the price of product and services • Many consumers are aware of the lower distribution costs that are associated with web channels. ENTER 2005 Research Track

  10. Literature Review - Distribution Channels ENTER 2005 Research Track

  11. Methodology The Selected Distribution Channels ENTER 2005 Research Track

  12. Methodology - The Selected Hotels • Selection was based on the hotel membership list from HKHA (2003) and the star rating system of Hotels.com. • A total of 79 hotels from HKHA (2003) membership list. • Star-rating system: Five-star =Deluxe, Four-star=Superior, Three-star=First class, Two-star=Moderate, One-Star=Economy. • A checklist was conducted to find out whether there were rates offering by the seven distribution channels for each hotel in July 2003. • At last, 45 hotels were chosen in this study, with 15 hotels in each of the three-, four-, five-star categories ENTER 2005 Research Track

  13. Methodology - Data Collection Procedure • Data were collected from seven distribution channels and forty-five hotels from August to December 2003. • To ensure unbiased reliability and validity • The data collection days were set from Monday to Friday (weekdays) excluding Saturday and Sunday (weekend) • The lowest available rates were recorded • Each rate was identified as single occupancy and for room only • The booking day was set to 7-day in advance • On each day, one category was recorded on the seven distribution channels. The groups were rotated day by day, from Monday to Friday. ENTER 2005 Research Track

  14. Methodology - Limitations • Short data collection period: from August to December 2003 • The period of data collection might be affected by post-SARS: the hotel rate and occupancy were historically low • The research findings are limited to the forty-five hotels and several online distribution channels ENTER 2005 Research Track

  15. Findings - Average rates offered by different channels and in different hotel categories (HK$) ENTER 2005 Research Track

  16. Findings - Average rates offered by hotel categories • Three-star hotels’ average rates ranged from HK$566.55 to HK$874.09 • Four-star hotels’ average rates ranged from HK$857.63 to HK$1436.13 • Five-star hotels’ average rates ranged from HK$1210.43 to HK$2537.32 ENTER 2005 Research Track

  17. Findings - Average rates in the study period(N=15 in each hotel category) ENTER 2005 Research Track

  18. Findings - ANOVA of Distribution Channels ENTER 2005 Research Track

  19. Findings - ANOVA Results for 3-star Hotels ENTER 2005 Research Track

  20. Findings - ANOVA Results for 4-star Hotels ENTER 2005 Research Track

  21. Finding - ANOVA Results for 5-star Hotels ENTER 2005 Research Track

  22. Discussion Distribution Channels used The overall results showed that the hotels had used multiple distribution channels • Voice, hotels’ own website, Travelocity and Hotels.com were available for each of the selected hotels. ENTER 2005 Research Track

  23. Discussion The pricing practice in relation to the nature of distribution channels • WingOn consistently offered the lowest rates for all hotel categories. • The online pricing practices might be related to the contract of suppliers and hotel management in sales booking. ENTER 2005 Research Track

  24. Conclusions • Hoteliers need to spend more efforts to allocate room sales through online sources. • The local travel agent offered the lowest rates than worldwide distribution channels. • Indirect distribution channels had better online pricing practice than direct distribution channels. ENTER 2005 Research Track

  25. Industrial Applications • Refining online pricing practices in direct distribution channels • Integrating the networks of worldwide online distribution channels • Developing local online distribution channels ENTER 2005 Research Track

  26. Future research • This study focused on the perspective of customers who pursuit best online price of hotel rooms. Future studies could examine the perspective of suppliers. • Extending the investigation scope to other regions. • Expanding the variables of distribution channels and hotels. • More empirical studies should be conducted using duration variables ENTER 2005 Research Track

  27. Thank You! ENTER 2005 Research Track

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