The Use of Differential Pricing in Tourism and Hospitality

Abstract

Due to the widespread adoption of revenue management strategies within the hospitality business, pricing has become more and more a central topic both for academics and practitioners. In particular, pricing has evolved towards value-based approaches, dynamic and customized through the use of price differentiation. “Rate fences” are the criteria that hotels adopt to separate customer segments whose service values may differ. The purpose of this chapter is to analyze the academic literature as well as the business practices relating to this subject. The authors propose a logical link between rate fences and the hedonic pricing approach. Main topics are 1) rate fence classifications and 2) the effectiveness of rate fences and their impacts on perceptions of fairness. Overall, this contribution suggests that time-based rate fences are fundamental at the destination level, and they are strictly connected to seasonality. Destinations' policymakers and firms can consider strategies and tools for overcoming seasonality, including special events that may take place in a destination.