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International Journal of Hospitality &
Tourism Administration
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The Channel That Offers the Lowest
Online Room Rates: A Case Study of
Hotels in Hong Kong



Rosanna Leung , Basak Denizci Guillet & Rob Law

Caritas Institute of Higher Education, Kowloon, Hong Kong


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

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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:

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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
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Caritas Institute of Higher Education, Kowloon, Hong Kong

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

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]

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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


Lowest Online Room Rates
Occupancy (%)

Average Room Rate



2008 Average Room Rate
2009 Average Room Rate

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2008 Average Occupancy





2009 Average Occupancy














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.

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

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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...

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