Cornell: Higher ADR = Higher RevPar, Regardless of Occupancy
We just do not find support for a reactive pricing approach.
“A ten-year study of pricing and revenues in over 4,000 European hotels revealed that regardless of the economic situation of the time period, hotels that positioned with ADRs above those of their direct competitors benefited from higher relative RevPAR even though they experienced lower comparative occupancies.
The study found that hotels that maintained average daily room rates somewhat higher than the hotels in their competitive set recorded consistently higher revenue per available room (RevPAR), again compared with their competitor hotels.
Additionally, contrary to the findings of a study of U.S. hotels, maintaining a consistent relative price over time (as compared to having a fluctuating price) did not significantly affect revenue performance for these European hotels, controlling for hotel type and location.
‘Although this study does not directly measure price elasticity, our data support numerous other studies that have demonstrated the importance of pricing as a strategic positioning mechanism,’ said Enz, who is the Lewis G. Schaeneman, Jr. Professor of Innovation and Dynamic Management at the SHA. ‘In this study we see the importance of strategic positioning in European hotels, just as we have seen it in U.S. properties. This does not rule out tactical pricing moves recommended by revenue management, but it argues for an overall focus on the pricing strategy. We just do not find support for a reactive pricing approach.'”