Revenue Management Pricing Research Articles

Variable Pricing in Restaurant Revenue Management: A Priority Mixed Bundle Strategy

The restaurant industry has historically been limited in its ability to adopt traditional revenue management pricing practices (e.g., variable pricing across tables and times) because of three specific challenges: (a) inability to segment customers by willingness to pay prior to seating, (b) limited ability to price discriminate (i.e., prioritize limited seating for the highest paying customers), and (c) inability to communicate menu price variances in advance. This article reviews common restaurant pricing strategies and discusses how each strategy cannot sufficiently address these three challenges. This work proposes a new strategy, the Priority Mixed Bundle ( PMB) Strategy, which addresses all three of these challenges. The PMB states that customers can make reservations if they are willing to commit to dining from a prix-fixe menu while walk-ins can dine a la carte. The article argues for why PMB is theoretically viable and could be superior to existing menu pricing strategies. A field study shows that the PMB generates more revenue than a la carte strategies. Survey results suggest that customers perceive PMB as fair. Overall, this research advances theory in restaurant revenue management and proposes a pricing strategy for restaurants.

Dynamic Airline Network Pricing

Airlines offer passengers different ways to go from a given origin to a desired destination via complex hub and spoke networks. The prices of itineraries typically violate an intuitive linear additivity property: namely the fare for flying from A to B plus the fare for travelling from B to C equals the fare for traveling from A to C with a layover in B. Despite the increasing use of sophisticated revenue management pricing algorithms, we argue that computational complexity precludes optimal dynamic pricing over an airline's entire route network, forcing them to rely on heuristics to approximate optimal prices of individual flights but ignoring interactions over the network as a whole. We estimate a dynamic structural model of airline pricing with a novel high frequency data set on flight prices and seat availability. We relax the assumption of optimality and resolve classic econometric issues of endogeneity, censoring, and truncation to recover the airline's beliefs on its stochastic demand process. We formulate and solve the optimal dynamic network pricing problem for simple networks and compare revenue and consumer welfare under several different pricing strategies to elucidate the channels through which pricing externalities are transmitted in the network. We apply our approach to calculate counterfactual network-perfect pricing policies for three node sub-networks on the periphery of the route networks for several airlines. We estimate that revenue for these sub-networks could be increased by over 2-10% via the adoption of a network-perfect pricing strategy.

Perceived unfairness of revenue management pricing: developing a measurement scale in the context of hospitality

PurposeThis paper aims to offer a multi-dimensional scale for measuring the concept of perceived unfairness of revenue management pricing (RMP) in the context of hospitality.Design/methodology/approachTo develop a measurement scale for the perceived unfairness of RMP, the authors conducted a qualitative study using the critical incident technique to identify the key components of our measurement tool. They then collected two samples of quantitative data enabling them to have compelling evidence of the scale’s reliability and validity.FindingsThis research identified three dimensions of perceived unfairness of RMP in the context of hospitality: perceived normative deviation, perceived opacity and negative effects. The new scale proposed here is an alternative measurement instrument that could be useful for detecting and correcting some negative aspects of RMP.Practical implicationsThis measurement scale will help hotel managers to detect potential feelings of unfairness in relation to the RMP policies. It might also be used within the framework of market analyses and pricing strategy plans. Finally, the results of this research show that transparency, fairness and ethics based pricing could help hotel managers increase their revenue-per-available-room during and post COVID-19 pandemic.Originality/valueThis research develops a complete measurement scale for perceived unfairness of RMP, including cognitive and affective dimensions. The richness of this scale will help hospitality companies effectively identify the indicators that denote perceived unfairness of RMP, making them better equipped to handle customer dissatisfaction.

Application of Revenue Management Practices in Star-Rated Hotels In Kenya

The study aimed to find the extent of applying revenue management (RM) practices in star-rated hotels in Kenya. Specifically, the study sought to determine RM policies and implementation, application of RM techniques, and the use of RM systems. The study used a quantitative approach and adopted a cross-sectional survey research design. The study targeted 225 revenue managers from all-star-rated hotels in Kenya. The findings revealed that RM is a practice in star-rated hotels, even though not in all hotels. Hotels reported having RM policy and implementation taking place. There was an adoption of RM techniques. A dynamic RM team and the presence of social media integration with RM were identified. The findings revealed that by large, star-rated hotels interact with RM systems and sub-systems on the use of RM systems. Some hotels use either one or a combination of two systems. Furthermost, hotels were found to have automated their revenue collection. It was also revealed that they have adopted integrated RM soft-wares. The hotels were found to have meaningful RM data and information, RM pricing devices, and non-pricing devices. In comparison, information reveals a slightly above average presence of RM application in hotels in Kenya. The empirical evidence presented in this paper reveals that some hotels have not entrenched RM applications in terms of policies and implementation, RM tools and techniques, and their RM systems are lacking. The paper proposes that for full realization and maximization benefits associated with RM practices like predicting the growth of hotels, reducing operational costs, improving yields, and generating revenue, the industry should fully embrace RM applications.

Revenue management pricing in the hotel sector: Reducing perceived unfairness to encourage willingness to pay

In a context of ever-increasing competition, revenue management pricing (RMP) has become a strategic tool for companies with limited capacity. However, despite its considerable appeal, studies show that RMP has mixed reactions from consumers. The aim of this research is to test levers of actions that can help reduce the perceived unfairness of RMP and thus promote willingness to pay (WTP). Two quantitative samples ( N1 = 325; N2 = 280) allowed us to validate the measurement instruments for the concepts mobilized and to test two explanatory ‘fairness-based pricing’ models. The results show that fairness and transparency have strong positive individual and interaction effects on reducing the cognitive dimensions of perceived unfairness and on reinforcing WTP. However, the effects on the affective dimensions are not confirmed in the two models tested.

Effects of Revenue Management Pricing Strategies on Perceived Fairness

ABSTRACTThis study aims to examine the potential effects of three revenue management pricing strategies (best rate guarantee, rate (dis)parity, and rate frame) on customers’ perceived fairness. A 2 × 2 × 2 factorial between-subjects experimental design was used. Eight scenario-based surveys were employed to evaluate how potential hotel guests react to three different revenue management strategies. The outcome of this study offers a set of guidelines for hoteliers to follow in terms of revenue management pricing strategies across multiple distribution channels, while providing revenue managers with empirically supported suggestions to increase hotel revenue.

Evaluating the impact of mega-sporting events on hotel pricing strategies: the case of the 2014 FIFA World Cup

PurposeThis study aims to examine the impact of a mega-sporting event “2014 FIFA World Cup” on hotel pricing strategies and performance.Design/methodology/approachThe present project examines the host regions’ response to the 2014 FIFA World Cup which was established by the variance in the main hotel key performance indexes: occupancy, average daily rate, revenue per available room (RevPAR) and supply. Using data gathered from STR, this research distinctly shows how the Brazilian host regions reacted to the World Cup.FindingsResults suggest that the key performance indicators of Brazil’s lodging sector reacted differently to the World Cup. Although all hosting cities experienced significant RevPAR growth because of the increase in hotel room rates during the event, the supply and occupancy performed differed from each city.Research limitations/implicationsResearch is limited to the case of hotel performance at the country level for mega-events. The study focused on the reaction of revenue managers in the Latin America context. Other contexts may generate different results.Practical implicationsThe study helps revenue managers to examine how the FIFA World Cup travel demand affected pricing strategies and revenue management practices in the Brazilian hotel sector in areas undergoing seasonal growths in overnight tourism. This study serves to inform hoteliers and practitioners about revenue management pricing strategies to improve hotel performance during mega-sporting events.Social implicationsThis study reveals that the benefits brought by a mega-event are not always translated into strong hotel revenue performance. This study highlights an important but understudied research area of revenue management pricing strategies and the effect of mega-sporting events in the hotel sector. This study contributes to the literature as one of the few investigations to benefit hotel pricing strategies and overall revenue performance.Originality/valueThis study is one of the few studies about exploring the reaction of revenue managers during the execution of a mega-sporting event. The value of the present study lies in the fact that the authors extend previous studies examining the impact of the most important sporting event in the hotel industry at the country-level perspective. This study serves to inform hoteliers and practitioners about revenue management pricing strategies to improve hotel performance during mega-sporting events.

Exploration of revenue management practices – case of an upscale budget hotel chain

Purpose– The purpose of this study is to investigate the implementation of revenue management (RM) pricing practices and managers’ perceptions towards this practice in a budget hotel chain and to provide recommendations for improving the adoption of and perception towards this practice.Design/methodology/approach– A single case study method was adopted to conduct an in-depth qualitative research in a hotel organization. In-depth data were collected through semi-structured interviews, observations and documentation.Findings– The research findings indicate that the implementation of revenue management system (RMS): needs to be clearly communicated and made tangible to employees; can impact the profitability of the budget hotel sector and not only mid-scale or luxury sectors; and remains a profit-oriented decision with little consideration for customer outcomes.Research limitations/implications– The findings may not apply to mid-scale or luxury properties, as the results cannot be generalized to other hotel chains in other countries that apply complex pricing structures. Future research might develop multiple case study design to increase the rigor of the research by focusing on themes or patterns uncovered in a single case study.Practical implications– The practical application of the study is twofold: the recommendation to maintain ongoing implementation activities, such as designing operational plans and training programs; the recommendation for a RM pricing strategy that maintains positive price fairness perceptions and results in positive behavioral intentions.Originality/value– This study helps advance our understanding of the characteristics that influence the success of RM implementation in the budget hotel context and provides us with useful insights to design effective dynamic strategies to enhance the implementation process both for the organization and its stakeholders.

Influences of consumer characteristics on fairness perceptions of revenue management pricing in the hotel industry

Fairness perceptions play an important role in customers’ behavior, and this study explores which consumer characteristics influence fairness perceptions of revenue management (RM) pricing in the hotel context. To examine such differentiating characteristics, the study conducts a logit analysis by comparing two groups: one group of customers who consider hotels’ RM practices to be fair and the other group considers the practices to be unfair. The findings provide an opportunity for hotel managers to identify customers’ particular characteristics that affect customer's perceptions of the fairness of hotels’ RM pricing practices.

The effect of brand class on perceived fairness of revenue management

The purpose of this survey-based research was to determine whether brand class influences the perceived fairness of hotel revenue management (RM) pricing strategies. We found that brand class does not impact perceptions of fairness of RM pricing practice strategies when controlling for familiarity and the provision of information. The implication is that managers should not base RM pricing practice decisions on brand class, but rather should focus on raising customer familiarity of their pricing strategies.

An airline revenue management pricing game with seat allocation

This paper studies a horizontal fare-pricing competition between two airlines having a single flight leg. Two distinct scenarios are considered. First, the two airlines price competition for the pre-committed booking limits is analysed. The problem is studied under deterministic price sensitive demands. The existence of unique pricing strategies at Nash equilibrium is shown. In the second scenario, a joint seat allocation and fare-pricing competition model for stochastic demand is proposed. A numerical analysis is presented to demonstrate the impacts of various market conditions on the payoffs, booking limits and pricing strategies of the competing airlines.

The Moderating Role of Familiarity in Fairness Perceptions of Revenue Management Pricing

Perceived fairness of revenue management (RM) pricing is a serious concern, as RM uses different prices for fundamentally the same service. The authors examine the effects of familiarity with an RM pricing practice, framing of prices, and fencing condition (i.e., whether a respondent was advantaged or disadvantaged by an RM price) on fairness perceptions. The authors conduct two experiments and find that familiarity moderated the effects of framing and fencing condition on consumers’ fairness perceptions. Specifically, framing and fencing condition had strong effects on perceived fairness when respondents were less familiar with a pricing practice. However, when familiarity was high, neither the framing nor fencing condition effect was significant. Our findings suggest that familiarity may be a boundary condition for prospect theory.