Question

4. Assume you own and operate a hotel near a busy international airport. Your property caters directly to business travelers. Assume also that your historical records indicate a complete room’s sell­out every Tuesday and Wednesday night for the past six months. Your hotel’s director of sales (DOS) informs you that she forecasts Tuesday and Wednesday night sell­outs for the coming six months as well. What does that information tell you about business traveler’s willingness to purchase rooms on those specific nights? Would you encounter an ethical dilemma instituting a differential pricing strategy that valued the rooms you have available for sale on Tuesday and Wednesday nights higher than those rooms you sell on other nights? Explain your position

Answer 1

As the rooms on Tuesday and Wednesday nights have been completely occupied on a historical basis and as the future prediction also forecasts a complete sellout for these two days it can easily be said that the demand for rooms is very high on Tuesday and Wednesday night and as such travelers have a high level of willingness to purchase rooms on those specific nights even if it at a slight premium.

No, I will not encounter an ethical dilemma instituting a differential pricing strategy that valued the rooms you have available for sale on Tuesday and Wednesday nights higher than those rooms you sell on other nights. This is because revenue management for the hospitality industry entails differential pricing. In fact differential pricing strategy is one of the key factors in revenue management for hospitality industry. During peak seasons when demand is very high room rates also increases. The increase can be as high as 100% to the current room rates or rack rates. It is my duty and job to optimize the business’s income and profits and differential pricing enables me to do that. Differential pricing is not unethical, in fact it is completely ethical as it is a form of demand-based pricing or segmented pricing.