Price Elasticity In Hotel Case Study
In hospitality is one question the key to success or not. What to charge for a room a night? Unfortiontly, most smaller or private owned hotels just set a price. Reality is that such price is usually too high or much too low and will not increase any revenue. Key to set the right price is in understanding economics. To achieve business revenue the product price multiplied by the number sold.
A high price charged can end up selling fewer rooms and as result, a high revenue is denied. A low price in combination with a low number of rooms sold cannot increase your sales numbers.
Pricing elasticity in hospitality is reflected by a response to price changes in the change of room demand.
Which means If the price goes down how much more rooms can
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Key is to understand customers price sensitivity which will create a maximum on overall revenue if used wisely.
In hospitality is the average daily rate ADR and the number of rooms sold, which create the price elasticity.
This form of the indicator can measure how a hotel in general and in comparison, to competitors, does.
Further, it displays the comparison of the day by year and overall revenue by year. The focus is to increase revenue progressively year by year. Unfortiontly, ADR by itself will not measure the achievement of the hotel alone. The combining of ADR and RevPAR which stands for revenue per available room will give the perfect reflection of a hotels performance.
ADR = Room Revenue / Number of Rooms sold (exclusion of complimentary rooms)
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