Competitor Orientation, Pricing Strategy, and Business Performance

Competitor Orientation, Pricing Strategy, and Business Performance

Carlos A. F. Sampaio (Polytechnic Institute of Castelo Branco, Portugal & NECE, University of Beira Interior, Portugal), Ricardo G. Rodrigues (Polytechnic Institute of Castelo Branco, Portugal & NECE, University of Beira Interior, Portugal) and José M. Hernández-Mogollón (Universidad de Extremadura, Spain)
DOI: 10.4018/978-1-7998-3628-5.ch008
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Abstract

This study proposes to study the nature of the relationship between competitor orientation, a strategy based on low prices and hotel business performance, and to test if a low-price strategy plays a mediating role in the relationship between competitor orientation and business performance. A structural equation modeling approach is used, and a sample from the Italian hotel industry is used to evaluate the proposed hypotheses. Results show that competitor orientation is positively related to business performance and to a strategy based on low prices. Furthermore, it is found that a low-price strategy has adverse effects on business performance. Additionally, the mediating role of the low-price strategy is not confirmed.
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Introduction

Competitor orientation has been widely studied in marketing literature, as part of a broader concept: market orientation. Moreover, the market orientation concept, despite having its roots in the 1950ths, has been intensively studied since the 1990ths. Narver and Slater (1990) and Kohli and Jaworski (1990) developed the theoretical background of the market orientation literature and the most used scales to measure it.

Moreover, both approaches set a competitor focus as being part of market orientation. Narver and Slater (1990) focuses on a competitor orientation, defined as a means that a seller understands the short-term strengths and weaknesses and long-term capabilities and strategies of both the critical current and the key potential competitor. On the other hand, the Kohli and Jaworski (1990) approach focuses on intelligence generation about the competition, its dissemination and response. Nevertheless, despite these early definitions, few studies focused on the effects of a competitor orientation and on its impact on business performance (e.g. Dev, Zhou, Brown, & Agarwal, 2008; Gladson Nwokah, 2009; Nwokah, 2008; O’Dwyer & Gilmore, 2019; O’Dwyer & Ledwith, 2010; Zhou, Brown, & Dev, 2009; Zhou, Brown, Dev, & Agarwal, 2007).

Hotels play a crucial role in the positive economic outcomes of tourism, further allowing jobs creation and economic development. In addition, tourism has the potential to contribute towards employment and economic growth, as well as to foster development in rural, peripheral, or less-developed areas (Eurostat, 2019b). Furthermore, the hotel industry comprises a wide range of operations where production and sales are combined in the same premises and happen mostly simultaneously with the customer leaving the premises with no tangible product (Mullins, 1993). Combining these characteristics in providing superior value to customers is not easy, although the level of service quality, and price and, in some way, the combination of what the hotel offers indicates to customers what they should expect when staying in that hotel.

Price perception directly influences customers purchasing behaviour (Zeithaml, 1988). 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).

Moreover, the price is a key factor in the hotel selection (Lockyer, 2005), and hotels change prices according to an inter-temporal structure of the trend, primarily depending on the type of customer and the star rating (Abrate, Fraquelli, & Viglia, 2012).

Therefore, this work deals with two main underlying gaps that set two main objectives: first, as to the authors’ knowledge extent, few studies analyze the relationship between a competitor orientation and hotel business performance and second little has been done to understand the effect of the pricing strategy in this relationship. Prior literature found positive outcomes form a competitor orientation on several kinds of business performance measures, but the direct link between a competitor orientation and hotel business profitability is mostly unexplored. Secondly, the mediating effects of a low-price based strategy on the relationship between a competitor orientation and hotel business performance are unexplored and must be addressed.

To fulfill these gaps, a literature analysis is conducted, hypotheses are formulated and a structural equation model is proposed. The methodologic procedures used in this research are described, and the obtained results are presented. Finally, some conclusions about this study are presented.

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