Modelling a decision maker's preferences, part 2: A tool for pricing decisions in the hospitality industry

Pricing decisions in the hospitality industry are subject to a number of different and competing considerations, including economic (profit), marketing (what price will guarantee a sale), yield, wear and tear on the facility, the owner's preferences, and the manager's preferences. Since a manager balances all these conflicting considerations in determining his or her own preferences, the manager's preferences should be used as the starting point for generating a pricing policy. Specifically, the manager's preferences for the two substitutable attributes - the number of rooms sold and the average room rate - are modelled using the Constrained Choice Table (CCT) to collect the specific preferences and the Linear-Fractional model to fit linear indifference curves with non-constant rates of substitution (unequal slopes) to the CCT data. This model combined with the marginal cost per room is used as a starting point to develop and evaluate different pricing policies. The consequences of using an average room rate, same value room rate pricing policy for two different types of managers, one occupancy level sensitive and the other average room rate sensitive, are evaluated.