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The Relationship's Between Hotel Room Pricing, Occupancy, and Guest's Satisfaction

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Guest satisfaction has become an important aspect of the hotel industry. Unlike other industries, the hotel industry prospers due to customers’ retention. It is only through customer satisfaction that a hotel can retain its customers. Basically, customers’ loyalty is dependent on the quality of the services that they get in a hotel. Therefore, if customers are not satisfied with the services they receive in one hotel, they will look for better services elsewhere (Jana & Chandra, 2016). Excellent customer service and high guest satisfaction begin with understanding guest expectations. It has to be noted who your customers are and what they want in companies ‘customer satisfaction is generally measured by asking customers. When customers have high expectation and they will be disappointed and will likely rate their experience as less than satisfying. The occupancy rate is the ratio between the number of occupied rooms and the number of rooms offered by the Hotels. It is different from the utilization rate, which shows the ratio of the number of occupied rooms to the total number of rooms in hotels. ADR is one of the commonly used financial indicators in hospitality industry used to measure how well a hotel performs compared to its competitors and itself (year over year).

In the hotel industry for the ADR to gradually increase year over year bringing in more revenue. However, ADR itself is not enough to measure the performance of the hotel. One should combine ADR, occupancy and Rev Par (revenue per available room) to make a sound judgment on hotel performance has been a heated topic among the hospitality researchers during the past decade, yet the role on guest satisfaction remains unclear(Yuksel & Yuksel, 2001). Price could be conceptualised as an attribute that must be given up or sacrificed to obtain certain kinds of products or services. Moreover, a high price could trigger customer switching, as an immediate physiological response to the negatively valenced information. Particularly the role of pricing and competitive offerings in financial services markets was highlighted, indicating that pricing problems exert the main impact on switching behavior (Colgate and Hedge, 2001). Customers’ search for price information has a direct positive influence on price satisfaction. Price satisfaction, as expressed by several variables, has a direct positive impact on customer switching intention (as in Colgate and Hedge, 2001; Bogoolova and Romaniuk, 2005).

Price transparency, the price-quality ratio, relative price, price reliability, and price fairness are all dimensions of price satisfaction and are therefore first-order factors of price satisfaction. (Anon, 2018). In the hospitality industry, a widely varied room the time of the day, week, or year. Moreover, the hospitality industry has experienced the entrance of many investors who are willing to meet all the needs of their customers. Average Daily Rate or the hotel room pricing is a statistical unit that is often used in the lodging industry. The number represents the average rental income per paid occupied room in a given time period. In other words, the guest may experience similar levels of service during two hotel stays, could be very different depending on the room rate and the hotel services. To illustrate, having paid a rack rate, the consumer may be less satisfied with the hotel. Furthermore, a guest staying at a hotel during a busy(high-occupancy) period may not only be less satisfied due to the relatively higher room rate paid but may be less satisfied due to the busyness itself, presumably due to less attentive service as a result of employees energies being spread thinly over the needs of so many guests.

At a particular hotel, higher room usually be charged when the volume or occupancy percentage, are anticipated to be higher than yield management. Dynamic pricing is a necessity in today’s environment as rates are accessible directly by the guests and across a wider variety of distribution channels than ever before. While traditional yield management was achieved through the length of stay restrictions and similar tactics, the most innovative hotels are moving toward a revenue optimization approach based around the optimal price point for every day in the future, as per channel and segment. Technology will help further drive our approaches to dynamic pricing, with pricing by customer, becoming a reality in the not too distant future.

Hotels also use customer characteristics, such as age, group membership, or employee status, to help determine which rates guest should pay. For example, most hotels offer lower rates to older people or to employees of certain organizations. In addition, many hotels offer lower rates to employees of non-profit organizations or government agencies or to members of their guest loyalty programs. Again, the reason for these rate fences is to help justify why guest are paying different room rates. For example, if a guest complains that he or she is paying a higher rate than someone else, the front desk staff can explain that the other guest received a senior citizen discount or was an employee of a company that had a special contract with the hotel. The implication is that the complaining guest could receive these lower prices if he or she exhibited the required guest characteristics.

For this reason, a luxury resort, for example, might receive a lower satisfaction rating than a budget motel even though its facilities and service would be deemed superior in ‘absolute’ terms. Guests expectations set the bar for customer satisfaction, which also affects repurchase decisions and customer loyalty. If a customer feels like you did not deliver a service that was expected, they will not come back and buy from you again. On the flip-side, if you deliver a service that exceeds customer expectations, you can bet they will come back to buy again, and tell all their friends about the experience. satisfaction is a result of the service level you deliver compared to what your customer expects to receive. Hospitality industry guests are and quality at a right price. Consequently, lodging turned their attention to guest satisfaction as a shorthand for quality by giving the guest the best services they provide to them.

Accordingly, The Hotel executives recognize brand quality as an important hotel rules hotel mega companies have developed several brands to serve multiple mega markets and guests. The value of a brand is based on the awareness of the brand in the market, its quality perception, and overall guest satisfaction. Satisfied customers tend to buy more, are less price conscious, and to generate positive word-of-mouth, thus contributing to bottom-line profit. Due to Increased attention to a customer focus, brand managers use satisfaction as a measure of the operational success of their strategies n lodging industry. They primarily examine the links satisfaction and revenue indicators at brand levels. Here are two benefits you can get from understanding customer expectations:

  • It lets you know what service levels are expected to keep customers happy and achieve high customer satisfaction
  • It can help you resolve customer complaints. Since complaints are a result of failing to meet expectations, you have the ability to quickly fix the problems and retain the business

Occupancy is a term that refers to the percentage of all guest rooms in the hotel that are occupied at a given time. (Opentextbc. ca, 2018)


If a hotel competes solely on price, it will not succeed since other hotels will quickly undercut the price or will offer additional value for the same price to the guest. In order to build a sustainable competitive advantage, the hotels must use price as a strategic weapon, not a tactical tool. By deciding the prices to be charged to specific guests of different market segments and by concentrating on delivering superior value and higher guest satisfaction, hotels will achieve long-term and sustainable revenue gains. The art of implementation is to increase the top and bottom line of the brand company. Intelligent and meaningful rate fences have to be used to allow guests to self-segment so that they can retain a feeling of choice. It is very important to ask because asking is a key factor that leads to customer satisfaction.

Although brands with higher levels of guest satisfaction had higher occupancy levels, brands with a higher percentage of franchised properties experience lower occupancies. Hotels must make/take strategic decisions regarding addressing the balancing of the guest need for service and the brand need for revenue. This indicates, that the balancing act is a crucial one for the hotel industry. Guest’s service has a long-term effect on the overall health of hotel brands at least in terms of future brand-occupancy level’s. Consequently, the aggressiveness with which brand management disciplines and eliminates franchisees who are providing relatively poor guest service may have serious implications regarding not only the future image but the actual future running performance of the entire brand.

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