Strategic Trade-offs in Hotel Best Rate Guarantees

Abstract

Ever-growing access to information represents a disruptive influence on many traditional industries. With an increase in access to a wide range of distribution channels, consumers experience greater pricing transparency than at any time in the past. At the same time, expansion of revenue management systems within the hospitality industry has led to a proliferation of rates and increased frequency of rate adjustment as property managers seek to optimize the match between prices offered and willingness to pay of each individual customer in a highly competitive market. Increased pricing disparities across distribution channels has shaped the opinions of consumers, who have responded by engaging in higher levels of search behavior in an effort to secure better deals, and a decrease in perceived pricing fairness (Gazzoli et al. 2008). Through promoting greater search effort on the part of customers, hoteliers effectively increase their competitor set, cutting into potential margins. Major hotel chains have responded through adoption of “Best Rate Guarantee” (BRG) policies and “Look No Further” lowest rate marketing messages, offering to match lower prices for identical rooms. Generally, these offers include an additional incentive in an effort to reassure customers that booking directly will always result in the lowest prices. The current study examines differences between the pricing strategies selected by different hotel chains. Specifically, frequency of BRG compliance compared to the magnitude of self-imposed penalties for violations.