Online Distribution Channels Used By Five Stars Hotel In Hong Kong



Online Distribution Channels Used By Five Stars Hotel In Hong Kong

Introduction

The development of the internet has greatly affected the ways hotels distribute and price their products. In the mid 1990s online travel agencies such as Expedia and Travelocity - also known as online intermediaries or online third party sites - partnered with airlines and hotels to offer travel products such as airline tickets and hotel rooms from multiple suppliers directly to consumers (Carroll and Siguaw, 2003). By using different business models and smarter business practices, and by taking advantage of the poor management and application of hotels' online pricing (Enz, 2003; O'Connor, 2002, 2003; Tso and Law, 2005), online intermediaries proved to be very successful. One of the main reasons for these e-intermediaries' success was their ability to provide cheaper room rates than the ones offered by the hotel brands websites or their reservation offices.

Price disparities among the distribution channels of hotels have shaped the perceptions of the consumers who are now searching several online engines and shopping around for better deals (Enz, 2003; Murphy et al., 2006; O'Connor and Frew, 2002; O'Connor and Piccoli, 2003; Thompson and Failmezger, 2005; Varini et al., 2003). Past studies have urged hotels to implement consistent pricing across all distribution channels (KPMG, 2005; Murphy et al., 2006; O'Connor, 2003; Thompson and Failmezger, 2005; Tso and Law, 2005). Rate parity is defined as setting the same rate structure across all distribution channels. When the revenue management department of a property controls rate parity, rate integrity is assured. As a result, the customer becomes more confident and trustful of the hotel's brand website while making reservations online (Hotel Online, 2004). In addition, by setting consistent rates across all distribution channels, a hotel can assure its customers that no cheaper rates exist elsewhere. Therefore, besides delivering the “best rate guarantee” promise, rate parity also serves as a controlling agent of rate and brand erosion for the hotel companies. The issue of inconsistent pricing can be related to the theoretical perspective of perceived fairness.

Kahneman et al. (1986) have used the concepts of “reference transaction” and “reference price” to investigate the fairness of firms' practices. In the case of online pricing, a “reference transaction” is how customers believe the online sale of rooms should be set by the firm, and the “reference price” is how much the service/product should cost them. Customers formulate their reference price from past experiences with the firm, posted prices, and market prices. For example, if a customer of a particular hotel in New York (market price) has always paid for a standard room (past experience) through the company's website $150 (posted price), the reference price will be $150. Therefore, if the same customer finds that particular room being sold on Expedia.com for $120, this customer may think that the online pricing posted on the company's website is unfair, and as a consequence, the customer's dual entitlement is ...