Title: Relationship between hotel rate increases and discounts and consumers' willingness-to-purchase: a prospect theory perspective

Authors: Scott J. Smith

Addresses: School of Hotel, Restaurant and Tourism Management, University of South Carolina, 701 Assembly St. Columbia, SC 29208, USA

Abstract: The objective of this research study was to determine the effect of hotel rate increases and discounts against a reference price in an effort to determine if consumer willingness-to-purchase rises and fall accordingly with the changes. The results of price increases against a reference price indicated that as the rates rose, a consumer's willingness-to-purchase decreased in direct relation to the magnitude of the increase. The results for rate discounts when compared to an established reference provided a non-linear relationship, and at certain levels provided no significant change in a consumer's willingness-to-purchase. This is an interesting finding that there is a nonlinear relationship between hotel rate discounts and consumers' willingness to pay. It explains some of the dilemmas faced by hotel managers with reference to hotel rate discounts and increases.

Keywords: revenue management; prospect theory; pricing; discounting; lodging industry; hotel rate increases; consumer behaviour; willingness to purchase; hotel rate discounts; hotels; hotel management; hotel industry.

DOI: 10.1504/IJRM.2016.077018

International Journal of Revenue Management, 2016 Vol.9 No.2/3, pp.108 - 126

Available online: 17 Jun 2016 *

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