Price Strategy, Market Orientation, and Business Performance in the Hotel Industry

Introduction

Market orientation literature faced a faster development in the 1990s when Kohli and Jaworski (1990) and Narver and Slater (1990) established the foundations for the following research on this subject. During this period, several market orientation scales were developed (Deshpandé & Farley, 1998; Deshpande, Farley, & Webster, 1993; Jaworski & Kohli, 1993; Kohli, Jaworski, & Kumar, 1993; Narver & Slater, 1990; Ruekert, 1992), although, MKTOR scale (Narver & Slater, 1990) and Jaworski and Kohli (1993) scale, or its reduced version, MARKOR scale (Kohli et al., 1993) established the cornerstone of the market orientation research.

Furthermore, research on market orientation was mainly directed to the industrial and consumer goods sectors (Gray, Matear, & Matheson, 2002; Quintana-Déniz, Beerli-Palacio, & Martín-Santana, 2007; Sin, Tse, Heung, & Yim, 2005). Nevertheless, in recent years, several studies testing the relationship between market orientation and business performance on the hotel industry were carried out (Bazazo, Alansari, Alquraan, Alzgaybh, & Masa’deh, 2017; Hinson, Abdul-Hamid, & Osabutey, 2017; Jogaratnam, 2017; Polo-Peña, Frías-Jamilena, & Rodrigues-Molina, 2012; Sampaio, Hernández-Mogollón, & Rodrigues, 2019; Wang, Chen, & Chen, 2012) yet, there is a shortage of market orientation research on the hotel industry with a transnational scope.

The tourism industry depends on the hotels’ ability to provide accommodation and is recognized as a key factor influencing a country or region’s economic potential, employment, and social and environmental variables. This is particularly the case of Spain and Portugal. According to the Eurostat (2019b), Spain, in 2017, was the most common tourist destination in the EU for non-residents (people traveling outside their country), with 306 million nights spent in tourist accommodation establishments, or 20.0% of the EU-28 total. As for Portugal, the total contribution of Travel & Tourism to GDP was EUR33.5bn, 17.3% of GDP in 2017, and was forecasted to rise to EUR44.7bn, 20.5% of GDP in 2028 (World Travel and Tourism Council, 2018).

Nevertheless, hotel companies face several challenges, such as the high fixed costs and floating demand that puts pressure on hotel business performance. On the other hand, travelers tend to use online travel agencies to search and book hotel rooms (Toh, DeKay, & Raven, 2011) and online search engines (such as booking.com, expedia.com) experienced significant growth on the accommodation reservation services (Booking Holdings Inc., 2019; Expedia Group, 2019), retaining a booking commission and pressuring further the hotels gross margin.

Moreover, according to Liu and Zhang (2014), channel related factors have a positive effect on customers purchase intention and product price and product review are among the most important factors driving customers to a booking channel and their priority. On the other hand, price is key factor in the selection of accommodation (Lockyer, 2005) and hotels change prices according to an inter-temporal structure of the trend primarily depending on the type of customer (leisure or business) and the star rating (Abrate, Fraquelli, & Viglia, 2012).

Furthermore, the two most common strategies used by hotel managers are low-cost leadership through price discounting and developing customer loyalty by providing unique benefits to customers (Kandampully & Suhartanto, 2000), which customers are aware through the available information about product price and product review in the online booking engines.

Therefore, there is a significant positive relationship between perceived price and the surrogates for perceived quality (staff and condition) (Bojanic, 1996). Price is what is given up or sacrificed to obtain a product (Zeithaml, 1988) and market orientation seeks to provide superior value to customers (Narver & Slater, 1990), combining price and service quality. Thus, this work has two main objectives. First, to evaluate the nature of the relationship between market orientation and business performance, and second, to access the mediating effects of a strategy based on a low-price on the relationship between market orientation and business performance in the hotel industry.

To accomplish the objectives defined above, a literature analysis is conducted, and the model hypotheses are formulated. Next, the methodologic procedures used in this research are described, and the obtained results are presented. Finally, some conclusions about this research are proposed.