Trends in hotel pricing

Abstract

Purpose The aim of this paper is to analyze and compare the effect of different hotel characteristics and room attributes on room rates of hotels in the cities of Lisbon and Porto, the capital and second most important city in Portugal. Design/methodology/approach Using the hedonic pricing method, hotel characteristics are decomposed and analyzed, giving us the perception of the impact of each hotel attributes on the room rates and the people’s willingness to pay for this. Ordinary least square regression analysis was applied to the hedonic price model to find which variables could explain differences in the hotel room rates in Lisbon and Porto. Findings The results suggest that in Lisbon and in Porto, a number of common characteristics have significant effects on consumer willingness to pay for a stay in a hotel as star rating, consumer rating and the room size. In Porto, the existence of a fitness centre and in Lisbon, the distance to the city centre are also attributes that create a premium in room rates. Practical implications The knowledge of the most valued characteristics by consumers is an important tool for hotel managers to define a price strategy. Also important is the knowledge of the attributes that provide more added value for consumers as these should be taken into account in new investment decisions. Originality/value This study highlights the implications of the way one defines and measures qualitative hotel characteristics in hedonic pricing. Although the hedonic method has been applied in several studies, to our knowledge, in Portugal, there are few studies applied only to hotel room rates, and there are no studies comparing hotel room rates in different Portuguese cities. Moreover, the research highlights the critical role of a proper definition and measurement of the variables in hedonic pricing in general and the hotel star in particular.