Price elasticity
Price elasticity
Maybe more correct would be to speak of price elasticity of demand. This elasticity measures the responsiveness of the quantity demanded or supplied of a good or service, to a change in its price.
It is calculated as the percentage change in quantity demanded, divided by the percentage change in price.
In the case of our hotel, this means: do (potential) customer react on a change in the price (per hotel night or for a booking in the banqueting?
And if so, is the relationstong, so (much) more demand when the prices go down for instance?
From experience in the hospitality industry, we do know that especially the leisure industry is 'price sensitive': so a big part of the (potential) customers does react (positively) on a price change (a price drop)
prices. On the other hand, if you change the image and strategy of the hotel the (new) prices should also match the new image. You cannot upgrade the hotel without rising the prices: customers will understand this as well.
A low price also has impact on your hotels image, so cheap is not associated with good, and cheap doesn't always bring you
- more customers
- the right type of customers
- the right image
A part of the customers (20-30%?) is insensitive to the prices: either they are very loyal, or they just don't care.
Buyers strike
If in a specific industry or region all the prices of a specific service (like hospitality) go too much up, this might bring about a buyers strike. This means (most) customer stop buying this type of service (product) and switch over to alternatives (Airbnb, staying with friends e.g.)
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