Relationship between hotel rate increases and discounts and consumers' willingness-to-purchase: a prospect theory perspective

The objective of this research study was to determine the effect of hotel rate increases and discounts against a reference price in an effort to determine if consumer willingness-to-purchase rises and fall accordingly with the changes. The results of price increases against a reference price indicated that as the rates rose, a consumer's willingness-to-purchase decreased in direct relation to the magnitude of the increase. The results for rate discounts when compared to an established reference provided a non-linear relationship, and at certain levels provided no significant change in a consumer's willingness-to-purchase. This is an interesting finding that there is a nonlinear relationship between hotel rate discounts and consumers' willingness to pay. It explains some of the dilemmas faced by hotel managers with reference to hotel rate discounts and increases.