Quality and Pricing in the Hotel Industry

Abstract

Quality is a price determinant in most products. However, establishment of a quality evaluation for the consumer is not an easy proposition. In the hospitality industry, fortunately, room quality evaluation and price information are readily available for consumers from published consumer guides. The Mobil Travel Guide is one of the more popular sources of hotel information available to consumers. The Mobil Travel Guide awards “stars” based on the level of quality their investigators deem appropriate. To investigate the relationship between quality and price in the hospitality industry, this study analyzes hotel managements' pricing behavior before and after a quality rating change by the Mobil Travel Guide. Data is gleaned from the Guide in several provinces and states in Canada and the United States from the relatively stable economic growth period of 1991 through 1999. The results reveal that hotel organizations raised prices before gaining a “star” and lowered prices before losing a “star.” The study concludes with a discussion of the implications of this pricing pattern.