Financial Implications of Competitive Pricing Strategies: Evidence from the Jordanian Hotel Industry

Abstract

The present study aimed to investigate the differing effects of competitive pricing strategies on the performance of hotels operating in bad regional political conditions. To this end, two complementary analyses were carried out based on a three-year dataset (2014-2016) collected through a questionnaire from 120 star-rated hotels in Jordan. The results of the one-way multivariate analysis of variance revealed statistically significant differences in the key performance indicators between hotels adopting a discount pricing strategy and those implementing a premium pricing strategy. The results showed that hotels adopting a discount pricing strategy enjoy a relatively higher market penetration index, but lag behind their competitors in terms of revenue generation index. On the contrary, hotels implementing a premium pricing strategy have a relatively lower market penetration index, but outperform their competitors in terms of revenue generation index. The results of the detailed descriptive analysis further demonstrated that although lower-priced hotels compared to their competitors have relatively higher occupancy rates, they experience relatively lower RevPARs. By contrast, hotels with higher prices compared to their competitors lose some occupancy, but achieve relatively higher RevPARs. Overall, the results suggested that adopting a premium pricing strategy, as opposed to a discount pricing strategy, is the most convenient way for improving hotel long-term financial performance, especially when hotel demand is relatively inelastic due to poor regional political conditions.