Pricing Strategies in Hotel

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In service industry, especially in the commercial sections of the hotel industry, it is necessary to be more market orientated. Therefore, in this industry, price itself is a market driven factor and it will affect future demand and eventually price can be used as a promotional aid for enticing new customers into the market or attracting them away from competitor. Minimum prices and/or value for money can be used as a sales image of the services if suitable. As has been previously indicated, price, especially in areas where quality is difficult for consumers to assess in advance of purchase, is often regarded as an indicator for quality. In this circumstance, prestige or high-price policies may be more successful than value for money. If price is seen as an indicator of quality expected, it is essential to fulfil the expectations of the customer, especially to provide excellent services.

Hotels are very diverse and by using the normal star-rating system, they can almost be regarded as a separate market. They are divided into three categories according to quality of service and facilities and based on the pricing analysis:

➢ Category I : represents one and two-star hotels

➢ Category II : represents three and some four-star hotels

➢ Category III : represents better four-star and five-star hotels

For this paper discussion, we will limit the problem only at five-star hotels, in other word; the discussion will only focus on category III. This category involves hotels in the luxury class, where services have traditionally been distinguishing, like famous features of the hotel. Customers with high income are attracted by the comfort and status of such establishment so price must be used to reinforce this image rather than as a competitive device. There are indications used by hotels as status symbol to their guest, and then they have to ensure that they remain as one of the most ‘expensive’ hotels. The risk of pricing oneself out of the market is therefore remote and in this situation, it is probably more dangerous to under price rather than overprice.


In order to focus the scope of discussion, we are limiting the problem only for five-star hotels in business centre location, namely Jakarta. For the case, we make a comparison about five star-hotels, which are located in Jakarta, Bali, and Singapore.

Before discussing about the pricing decisions in five-star hotels, we will focus on existing market structures used in the competition of five-star hotels.


Market structure refers to factors such as the number of firms that compete in a market, the relative size of the firms (concentration), technological and cost conditions, demand conditions, and the ease with which firms can enter or exit the industry. Different industries, such as apparel, food and consumer goods, automotive, service industries and many else, have different structures, and these structures affect the decisions the prudent manager will make.

Because every market has unique element, economics introduce the four basic models to distinguish among various types of market structures; those are:

1. Perfect competition

2. Monopolistic competition

3. Oligopoly

4. Monopoly

Those four basic market structures have differences in terms of characteristics and they are described in the following charts.

Table I. Comparison among Four Models of Market Structures

|Market Structure |Number of Firms |Nature of Products |Entry and Exit | |Perfect competition |Large number: each relatively |Products are identical or close |Easy | | |small |substitutes | | |Monopolistic competition...
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