Essays /

15256480 2 E2014 2 E901050 Essay

Essay preview

This article was downloaded by: [Bournemouth University]
On: 04 April 2015, At: 10:23
Publisher: Routledge
Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

International Journal of Hospitality &
Tourism Administration
Publication details, including instructions for authors and
subscription information:
http://www.tandfonline.com/loi/wjht20

The Channel That Offers the Lowest
Online Room Rates: A Case Study of
Hotels in Hong Kong
a

b

b

Rosanna Leung , Basak Denizci Guillet & Rob Law
a

Caritas Institute of Higher Education, Kowloon, Hong Kong

b

School of Hotel and Tourism Management, Hong Kong Polytechnic University, Kowloon, Hong Kong
Published online: 14 May 2014.

Click for updates
To cite this article: Rosanna Leung, Basak Denizci Guillet & Rob Law (2014) The Channel That Offers the Lowest Online Room Rates: A Case Study of Hotels in Hong Kong, International Journal of Hospitality & Tourism Administration, 15:2, 103-120, DOI: 10.1080/15256480.2014.901050 To link to this article: http://dx.doi.org/10.1080/15256480.2014.901050

PLEASE SCROLL DOWN FOR ARTICLE
Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content.

This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &

Downloaded by [Bournemouth University] at 10:23 04 April 2015

Conditions of access and use can be found at http://www.tandfonline.com/page/termsand-conditions

International Journal of Hospitality & Tourism
Administration, 15:103–120, 2014
Copyright © 2014 The Hong Kong Polytechnic University
ISSN: 1525-6480 print/1525-6499 online
DOI: 10.1080/15256480.2014.901050

The Channel That Offers the Lowest Online
Room Rates: A Case Study of Hotels in
Hong Kong
ROSANNA LEUNG
Downloaded by [Bournemouth University] at 10:23 04 April 2015

Caritas Institute of Higher Education, Kowloon, Hong Kong

BASAK DENIZCI GUILLET and ROB LAW
School of Hotel and Tourism Management, Hong Kong Polytechnic University, Kowloon, Hong Kong

Online distribution channels increasingly serve as platforms hotels can use to offer competitive room rates to attract price-sensitive customers and maximize yield. Capturing the lowest and highest daily room rates over a 360-day period from five of the most popular online travel agencies, and two batches of data showing the lowest room rates over 28 days from a last-minute bookings website, this study compares the lowest prices offered. The results indicate that no single online channel outperforms the others in any of the hotel star-rating categories, and that the last-minute reservation service provides the lowest hotel room rate across different star ratings. KEYWORDS lowest room rate, online distribution channels,

Hong Kong hotels, last-minute booking, star rating

INTRODUCTION
Prior to the e-business era, hotel managers seeking to maximize their yield had to rely on business partners such as global distribution systems (GDS) and travel agents to promote their products and services. The realization of results, which largely depended on the performance of these business Received April 6, 2011; accepted August 30, 2012.

Address correspondence to Basak Denizci Guillet, School of Hotel and Tourism Management, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong. E-mail: [email protected]
103

Downloaded by [Bournemouth University] at 10:23 04 April 2015

104

R. Leung et al.

partners, often took some time to come through. In addition, customers had to spend a tremendous amount of time and effort searching for the best available room rates, especially in the case of overseas hotels and tour packages; booking also incurred high telecommunication costs. In addition, geographic distance, time differences, and language barriers made it hard for customers to locate the information they desired. Finally, hotels could not maximize occupancy by providing last-minute special offers. With the dramatic increase in the number of Internet users and the popularity of e-commerce, more travelers now use online travel agencies (OTAs) to search for and purchase travel products. It is widely known that online distribution channels are a cost-effective way of promoting and attracting business, presenting neither effort nor geographical barriers. As users can easily locate and compare product prices, OTAs have become one of the major information sources for travelers. In order to remain competitive in the e-commerce environment, therefore, hotel marketing staff should set up their online marketing strategies with care.

In Hong Kong, a popular travel destination in Asia, the total number of hotel guest rooms increased by almost 28% between 2006 and 2010, from 47,128 to 60,102 (HKTB, 2010). The endorsement or approval of 52 new hotel projects over the next few years means that the number of hotels in Hong Kong will reach 227 by 2016, with a total of 70,223 guest rooms (HKTB, 2010). With such an increase, competition has become fiercer, and filling empty rooms has become the primary goal of hotel sales teams. Furthermore, the external environment also affects marketing strategies. When the international financial crisis occurred in 2008, the hotel industry was not seriously affected at first, as most people had already made their travel plans. However, as an increasing number of companies became negatively affected, subsequent plans, especially those of American business travelers, were suspended or cancelled. Figure 1 shows that the overall occupancy rate dropped from 85% in 2008 to 78% in 2009, with a record low of 55% in June 2009 (HKTB, 2009). In addition, the average room rate was reduced by 17% to HK$1,023 (US$131) in 2009 compared to HK$1,222 (US$157) in 2008. The situation was the worst in July and August 2009, when the average room rate dropped by 20% to HK$881 (US$113; HKTB, 2009b).

To overcome the negative effects of various factors in the external environment and maximize yield, fluctuations in occupancy rates underscore the importance of having a pricing strategy. Previous research indicates that price is consistently one of the primary determinants of consumer purchase decisions (KPMG, 2005; Law & Hsu, 2006; Rheem, 2009). As many OTA websites sort search results by price, a good pricing strategy can not only maximize a hotel’s profit but also increase its ranking (Shaw & Adams, 2002). As intermediaries between customers and hotels, online distribution channels have become increasingly important due to the efficient transfer of information they offer (O’Connor & Frew, 2002). Hence, many hotels use them to

105

Lowest Online Room Rates
Average
Occupancy (%)
100

Average Room Rate
(US$)
200

75

175

2008 Average Room Rate
2009 Average Room Rate

Downloaded by [Bournemouth University] at 10:23 04 April 2015

2008 Average Occupancy

150

50

125

25

2009 Average Occupancy

0

100
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

FIGURE 1 Hong Kong Hotel Average Room Rate and Occupancy in 2008 and 2009 (color figure available online).
Source: HKTB (2009).

advertise attractive room rates. To uncover the pricing strategies of such channels, the aims of this study were:
1. To examine which of the top OTAs offer the lowest room rate for hotels in Hong Kong;
2. To determine whether last-minute agencies (LMAs) offer room rates lower than those of OTAs for hotels in Hong Kong; and
3. To investigate the online pricing strategies of Hong Kong hotels.

LITERATURE REVIEW
Growing Importance of Online Distribution Channels
The wide adoption of the Internet and e-commerce has lowered entry barriers and switching costs for customers, which in turn has increased price transparency and competition (E. Kim, Nam, & Stimpert, 2004). The number of online travel customers has risen dramatically as a consequence. According to the Travel Industry Association of America (2006), the proportion of Americans buying travel products online increased from 31% in 2004 to 43% in 2005, and then to 64% by the end of 2007 (Horrigan, 2008). It is clear that online travel services have considerable potential to increase business volume. By the end of 2010, direct online channel sales accounted

Downloaded by [Bournemouth University] at 10:23 04 April 2015

106

R. Leung et al.

for 62% of hotel bookings made online, while the dependence of the top 30 major hotel brands on OTAs for bookings increased from 25.4% in 2008 to 30% in 2009 (Starkov & Mechoso, 2010). Even before the Internet became a major source of tourism product and price information, 60% of leisure travelers stated they were actively searching for the “lowest possible price” (Yesawich, Pepperdine, & Brown, 2000). With the increasing popularity of the Internet, comparing travel product prices has never been easier. The hotel industry habitually relies on OTAs to promote and sell their rooms because they offer efficiency in information transfer and the capacity to act as intermediaries between customers and ho...

Read more

Keywords

-120 -41 -6480 /10.1080/15256480.2014.901050 /15256480.2014.901050 /about/channels /articles/plan-b-vacations /blog/best-airlines-for-last-minute-ticket-deals/ /czech/images/but/050301_global-hotels.pdf /hotel/ /images/uploads/ /loi/wjht20 /news/pr2010_1st/ /page/termsand-conditions /pagedef/content/hotel/popupstarratingguide. /pnweb/jsp/doc/listdoc. /pnweb/jsp/doc/listdoc.jsp?doc_id= /pub/agent.dll?qscr=hgen&hfnm=h_vhw_detail. /reports/ /travel/internet05.pdf 0 0.00 0.000 0.05 0.19 0.21 0.25 0.33 0.34 0.37 0.39 0.42 0.52 0.54 0.60 0.614 0.66 0.683 00 000 001 003 004 005 006 023 04 044 05 053 1 1.00 1.000 1.001 1.003 1.04 1.041 1.042 1.051 1.09 1.092 1.11 1.111 1.131 1.15 1.151 1.178 1.23 1.28 1.4 1.41 1.57 1.6 1.60 1.68 1.83 10 10.1080 10.260 10.962 100 102 102.69 103 104 105 106 107 1072954 108 109 11 11.240 11.487 11.903 110 111 112 113 114 115 116 117 118 119 12 12.79 12.989 120 122 125 127 128 129 129.20 129119 13 13.700 13.94 131 133709 139/161 14 14.03 142 144.69 15 15.57 150 1525 15256480 1558 156/190 157 158 158.14 16 16.53 161 163 1639 166 168 17 17.335 17.473 171 174 175 175.76 176 18 18.02 18.49 18.93 180.70 181 189 19 197 1993 1997 1998 1st 2 2.347 2.732 2.758 2/3 20 20.03 20.05 20.263 20.95 200 2000 2002 2003 2004 2005 2006 2007 2008 2008/online-shopping/04-online-shoppers/05-the-biggest-determinants-ofwhether-people-shop-online-or-not.aspx 2009 2009b 2010 2011 2012 2014 2015 2016 202 21 21.568 213 217 22 22.380 220 222 223 227 23 24 24.55 249.388 25 25.4 25.43 250.365 254 256 259 265 266 27 270 271 274 28 287 29 29/29 29/41 295 2nd 3 30 30.76 300 301 306 307 31 312 314 315 316 317 32 32.53 324 328 329 33 330 337 34 341 342 346 35 36 36.212 360 364.07 37 37.136 37.320 37.61 379 38 39 390 3jh 4 4.345 40 40.96 400 404 405 409 41 41/47 42/56a 421 424 43 436 437 44 45 45/54 45/601 450 46 460 465 47 470 474 48 483 49 49.47 495 497 5 5.884 5/6 50 50/76 503 506 51 51/571 52 522 529 53 53.05 53/621 54 54/582 54/601 543 55 5586 56 56/731 569 57 57/731 581 583 589 59 590 6 6.011 6.451 6.6 6.914 60 60.39 600 607 609 61 61.73 6116 614 62 623 624 63 64 65 65.080 65.44 66 66.72 67 671 68 684 69 7 7.234 7.257 7.797 7.8 70 70.09 72 73 736 74 74.07 747 75 758 77 77.25 78 78.51 79 79.97 797 8 8.524 80 800 81 81.78 813 82 83.12 83.66 84 85 85.79 86 881 890 9 9.241 900 902 91.94 91/104 92 94 95 95/110 95/112 965 98 999 aaa about.asp accept access accord account accuraci accustom achiev acknowledg across act action activ actual adam addit address adjust administr adopt advanc advertis affect affili afford age agenc agent ahead aim airlin airlinetickets.org al alba allow almost alreadi also altern although amen america american among amount analys analysi analyz and/or anonym anoth anova anyon apollo appar appear appli applic approach approv apr april area argu aris around articl asia asia-pacif asia-pacificbas assess asset assign assist associ assum assumpt attempt attract attribut auction aug august author autom automat avail avenu averag avg b barrier basak base basi batch becam becom behavior bekerman best better better-r book bound bournemouth brand brown brows browser budget buhali bulk busi buy c calcul cancel cannot capac captur care carita carri case cat categori caus center certain chain challeng chan chang channel charg cheaper cheapest cheapticket chen chines choic choos cite citi claessen claim class clear click cmbhoinf collateral/it_online.pdf collect color com/pagedef/content/hotel/popupstarratingguide.jsp come comment commerc compani compar comparison compet competit competitor complet comprehens compris comput concentr conclus condit conduct conjectur connect connor consequ consider consist constitut consum contain contemporari content contract control conveni cooper copyright cornel corpor correspond cost cost-effect could cover cowoo crawl creat crisi criterion custom d daili damag danzig data databas date day deal dean debunk dec decemb decis decreas dedic definit dekay demand denizci depend design desir destin detail determin develop df differ differenti difficult digit dimens direct discount discuss distanc distinct distribut doc doi dollar domin download dramat drastic drop due dx.doi.org dx.doi.org/10.1080/15256480.2014.901050 e e-busi e-commerc e-mail e-satisfact e2014 e901050 eas easier easili edit educ effect effici effort eight either electron empir empric empti en enabl encourag end endors engelmann engin england enlarg ensur entir entri environ enz equal era especi establish et etour european evalu even ever everi exact examin exampl except exchang exclud exclus execut exist expedia expens experienc expert explan express expressli extend extern extra extract ezyield ezyield.com f facil factor fals famili feb februari feedback feel fierc fiercer figur fill final financ financi find first five five-star fl fluctuat focus follow follow-up forbidden form former forthcom found four four-star fourand fourth fram franci free frew fulli fund furthermor futur g galileo gather gds general generat generic geograph get getaway given global goal goh good govern grant greatest group grow growth guest guid guillet h habitu hard help henc hesit hide high higher higher-level highest hire histor hk hktb [email protected] hom home hong horrigan hospit hotel hotel-online.com hotel-online.com/news/pr2010_1st/ hoteli hotwir hour hous howev howsoev hsu htx hung id identifi immedi impact implement implic import improv incent includ increas incur inde independ indic indirect industri influenc inform informa insight instanc institut instruct intend intens intent interact interest interfac intermediari intern internet introduct inventori investig isra israel issn it.en.sabretravelnetwork.com it.en.sabretravelnetwork.com/images/uploads/ j jan jan10_hebstopten.html janiszewski joint journal jsp jul juli jun june k keyword kim kipling known kong kowloon kpmg kpmg.cz kpmg.cz/czech/images/but/050301_global-hotels.pdf l label languag larg largest last last-minut latest latter law lc lead leader least leisur length less leung level liabil liabl licens licensor lieberman life like limit link list literatur lma lmas loan local locat lodg log logic london long look loss low lower lowest lowest-r lowest/m ltd lutz luxuri lynch m ma maclsaac made mail main major make manag mani manufactur mar march market marketplac maxim maximum may mean mechoso median method methodolog microsoft mid mid-rang might minut monitor monro month morgan mortim motel motiv mr much multipl murphi must myth nam name narrowest nation natur near necessari need negat neill neither network never new next night none normal note notwithstand nov novemb number o object obtain occup occur oct octob offer offic often one one-night ongo onlin opaqu opinion opportun option orbitz order ordinari orlando ota other outperform overal overcom oversea own p pacif pacificbas packag page paramet parent pars part parti particip particular partner partnernet.hktb.com partnernet.hktb.com/pnweb/jsp/doc/listdoc. partnernet.hktb.com/pnweb/jsp/doc/listdoc.jsp?doc_id= pattern pay pegasus peopl pepperdin per perceiv percentag percept perform period perish person perspect pew piccoli pick plan platform pleas point polytechn popular popupsdis porter possibl potenti practic practition prefer present previous price price-sensit price-valu pricelin primari print/1525-6499 prior privat proceed process product profit program progress project promot propens proport provid public publish purchas purpos qiu qualiti qualityrating.do quarter quot r rang rank rate ratestogo rather rating/ota raven reach real realiz receiv recent record redistribut reduc refer reflect region regist relat reli remain replic report repres represent reproduct requir research resel reserv resolut respect restaur restrict result retail retreat retriev revenu revers review revisit revpar rheem rhtx risen rob room rosanna round routledg rubi runner sabr sale satisfact sawyer schegg schleusen school schwartz script scroll search season second seek seem select sell sensit sep serious serv servic set seven sever shall shape shaw shop shopper shorter show sig signific similar simpli simultan sinc singl site situat six slight softwar sole sort sourc southeast speak special specif specifi spend staff stand standard star star-rat star/ota starkov state statist stay std still stimpert strateg strategi street studi sub sub-licens subscript subsequ substanti success suggest suit suitabl superior suppli support suri survey suspend swiss switch system systemat t-valu tabl take taken tan tax taylor teach team technic technolog telecommun ten term test thank therefor think third third-parti thirdparti though three three-star thus ticket time timefram today togeth toh tomorrow took top topic total tour tourism tourist track transact transfer transmit transpar travel travel.travelocity.com travel.travelocity.com/hotel/ travelclick traveloc tremend trend tso tsunami turn two type typic u.s uk unabl uncov underscor univers unwil up-to-d upcom updat upon upper us use user usual valu vari varianc variat varini various ventur verifi via view virtual visit volum vs w w1t wale warranti way websit week weitz welcom whatsoev wherea whether whose wide wider will willing wish within without wood work world worldspan worst would www www.airlinetickets.org www.airlinetickets.org/blog/best-airlines-for-last-minute-ticket-deals/ www.cheaptickets.com www.cheaptickets.com/pagedef/content/hotel/popupstarratingguide. www.expedia.com www.expedia.com/pub/agent.dll?qscr=hgen&hfnm=h_vhw_detail. www.ezyield.com www.ezyield.com/about/channels www.orbitz www.pewinternet.org www.pewinternet.org/reports/ www.ratestogo.com www.tandfonline.com www.tandfonline.com/loi/wjht20 www.tandfonline.com/page/termsand-conditions www.tia.org www.tia.org/travel/internet05.pdf www.travelandleisure.com www.travelandleisure.com/articles/plan-b-vacations x year year-round yes yesawich yield z zero zuji