Pricing framework for the accommodation sector of South Africa : a focus on supply

Abstract

Future growth in the tourism industry will need to take factors influencing the competitiveness of a destination into consideration. Price is an important factor in competitiveness and is considered by some researchers to be the most important when arguing that price is the factor that generates revenue. However, price is a very complex issue and is determined by a variety of demand and supply factors. These factors also differ from industry to industry. Hence managers and entrepreneurs are faced with a difficult task, and without necessary guidelines in the pricing of accommodation, "price following" could be a result and may jeopardise the competitive advantage, when one takes the current global financial crisis into consideration. In view of the above it was the aim of this study to develop a pricing framework for the South African accommodation market. To achieve this aim, the following objectives were set: to determine the factors that play a role in the pricing of accommodation establishments; to determine the relationship between price and grading in the accommodation sector; and lastly to establish pricing guidelines for graded hotels and guesthouses in South Africa. In order to generate proper data, a survey was conducted at various South African accommodation establishments that were obtained from the databases of the three major associations in the accommodation sector, namely SATSA (South African Tourism Service Association), FEDHASA (Federated Hospitality Association of Southern Africa) and TGCSA (Tourism Grading Council of South Africa). 2288 questionnaires were sent out via e-mail and 247 completed questionnaires were received back. A principal component factor analysis was performed. This resulted in ten factors, namely environmental qualities, amenities, image, management factor, positioning, quality service factor, infrastructure service factor, location, marketing and product quality factor. The main results revealed that the most important factors in pricing are service quality, image and product quality. To investigate the relationship between grading and price, Spearman rank correlation was conducted and the results show a strong correlation between the grading of the accommodation and the price. This confirms that managers also consider "stars" as symbols of the type of quality which they can use to communicate a "value for money" experience when tourists choose accommodation at a certain price. In order to provide pricing guidelines for South African managers and entrepreneurs, the significance of mean price differences of star classification was tested and hotels and guesthouses were compared using an independent t-test. The results show a significant difference between the prices of hotels and guesthouses and especially in the five star categories. The results of this study can be used to assist managers in pricing and in obtaining a better competitive position in the industry, with revised management structures and marketing campaigns. The relationship between grading and price highlights the importance of grading in the minds of tourists. The research further suggests a twenty percent discrepancy between prices of the different star categories, indicating healthy competition between industry players. These pricing guidelines can sustain competitiveness with growing profitability. The most important contribution lies in the development of a pricing framework using different approaches and methods from the supply side in South Africa and can therefore be seen as a benchmark in the South African accommodation market research. The framework could assist managers and entrepreneurs to achieve the primary objectives, namely to generate a profit, establish a competitive advantage and sustain both. The three forces contribute to the constant working between entrepreneurship, effective management and providing value for money. Training of tourism managers on the pricing process, price factors, price strategies, grading, demands of domestic and international tourists and quality control is important to establish a competitive price for sustainability.