Effects of Pricing Strategies on Profitability of Hotel Industry in Kenya.

Abstract

Hotel industry in Kenya continues to draw attention from both the government, local and foreign investors due to the direct linkage to the multibillion tourism industry. Competition has shifted from local players to multinational luxurious hotels and this has revolutionized their marketing approaches to win customers and operate profitably. Different hotels continue fetching varying levels of profitability based on different pricing strategies and little research has been done on them. Information is therefore required on what pricing strategies to customize for optimum profitability. This study therefore sought to establish the pricing strategies used by Hotels in Kenya and determine how these strategies impact on profitability to the businesses. The population of study was the hotels in six key cities namely Nairobi, Mombasa, Nakuru, Kisumu, Meru and nyeri which are representative of diverse demographics in the four main administrative regions country. The research design was descriptive survey which was carried out using semi structured questionnaires administered to 109 respondents out of the 120 intended for the full sample. This constituted a response rate of 90.8%. The results revealed that hotels in Kenya employ a number of pricing strategies to achieve their pricing objectives. Cost plus pricing was revealed to be the most popular pricing strategy across all hotel classes. Other strategies that featured as highly applied were price signalling, break even pricing and image premium pricing. On the impact of pricing strategies on profitability, Cost plus pricing was recognized as a high contributor to all profitability aspects namely gross profit, target return on investment, liquidity and cash flow and sales revenue and long term profitability of the business. Price signaling, customer value pricing, and image premium pricing were noted to contribute moderately to maximum gross profit. Price signaling, image premium pricing and flexible pricing strategies were scored moderately on target return on investment. Parity pricing, leader pricing, and experience curve pricing were moderately associated with liquidity and cash flow while high sales revenue and long term profitability were attributed moderately to customer value pricing, parity pricing and experience curve pricing.