Maximizing Profits Through Optimal Pricing and Sustainability Strategies: A Joint Optimization Approach

Abstract

Implementation of optimal pricing and sustainability strategies are among the most efficient approaches for hotels to maximize their profits. This study uses a theoretical modeling approach to identify the joint optimal pricing and sustainability effort levels. In addition, through sensitivity analysis, this study examines how external factors may influence the optimal pricing and sustainability efforts decisions. Findings indicate that customers’ willingness to pay a premium is a critical determinant of sustainability action level while price sensitivity of target markets and cost-of-sustainability actions are two main inhibitors of sustainability practices at hotels. Findings further suggest that factors that positively influence demand levels also play critical roles in determining optimal room rates. However, findings suggest that optimal room rate is negatively influenced by price sensitivity of customers, customers’ sensitivity to premium charged to cover the cost of sustainability actions, and the unit cost of sustainability actions.