The following is a condensed version of an analysis that was prepared by Anna Seacat for a graduate level Marketing Ethics course at Southern New Hampshire University.
Analysis of Marriott International’s Pricing Strategy and Distribution Model
It is not likely that many guests at a Marriott hotel know what it means when an employee at the property is referred to as a “Charter Member.” However, membership in this little-known club, especially if the hotel property in question is older, is coveted and valued, because it means that the employee was a part of the original staff that opened the hotel (Mohammad, 2012). The author of this paper became a Charter Member at Marriott International as an opening General Manager at a TownePlace Suites by Marriott in 2011.
The General Manager of a Marriott International hotel has the unique responsibility of upholding one of Marriott’s most stringent ethical guidelines concerning pricing and distribution, the Look No Further® Best Rate Guarantee. This ethical standard serves as the guiding force for the pricing tactics used by Marriott’s network of 3,800 managed and franchised properties around the world (About Marriott International – See the World, 2013). Therefore, it is clear to see how Marriott’s pricing structure is closely tied to the distribution of its product. In the following product analysis, Marriott’s pricing strategy and its objectives for its product will be explored. Additionally, price discrimination issues and corresponding legal action that could be a potential risk for Marriott will be provided. Last, Marriott’s distribution model will be described, as well as what ethical issues may arise within the distribution network.
Objectives and Pricing Strategy
Marriott has explained that its corporate objectives include “immeasurable quality, service excellence, innovation, and integrity” (The Power of Marriott® International, 2007). One specific category under the integrity objective is what General Managers of Marriott hotels refer to as rate integrity and, or rate parity. Rate integrity/parity is a pricing strategy used within the hospitality industry to maximize a hotel’s revenue. Researchers at Cornell University (2012) described this pricing strategy as a price stability approach, because it aims to keep prices consistent despite changes in demand and throughout the distribution network (Canina, Enz, & Noone, p. 8). Conversely, price shifting is a strategy that hotels employ when they “shift their price position (category) relative to their competitive set,” as well as drastically changing room rates based on demand or which distribution channel the room is being sold (p. 7). Although price shifting is a commonly used strategy among hoteliers, Cornell’s researchers concluded that “price reductions do not stimulate demand” (p. 7), and should not be used as a strategy to increase revenue. On the other hand, Cornell’s empirical data showed that price stability can help hotels achieve higher revenue per available room, consequently making it a preferred pricing tactic.
To ensure that all Marriott GMs (General Managers) are employing this preferred pricing tactic, Marriott International enforces its ethical pricing guideline called the Look No Further® Best Rate Guarantee. Marriott’s strict guideline not only instructs GMs and her/ his staff to quote the same room rate that guests can get through other distribution channels, e.g. online and phone reservations, but Marriott enforces the guideline by offering to match a lower price that a customer might obtain, as well as give any customer who can find a lower price an extra 25% discount. For example, if a guest would make a reservation online at Marriott.com or any other travel website, but after making the reservation she or he called the actual property and received a lower rate from the front desk staff, Marriott would cancel the initial reservation, adjust the price “to reflect the lower rate and give an additional 25% off the lower rate” (How does Marriott’s Look No Further® Best Rate Guarantee work?, 2013).
Ethical and Legal Issues Arising from Pricing Strategy
Marriott explained that the purpose behind its strict pricing structure is to ensure that guests always “get the best rate available when you book directly with Marriott®” (Look No Further Best Rate Guarantee, 2013). In other words, with the growing number of online travel websites, such as Kayak, Travelocity, Expedia, Orbitz, etc., Marriott wanted to assure its guests that they did not need to waste time digging through websites to find the best deal on a Marriott hotel room. Instead, Marriott decided to require that its employees, its worldwide reservation centers, and other online distributors offer the same consistent price. This pricing approach is not without its ethical challenges though. For example, GMs and front desk staff are often pressured by potential guests, whether on the phone or in-person, to negotiate the rate of a room for various reasons. Furthermore, a General Manager may feel pressure from the hotel owner to offer lower prices to guests making a reservation on the day of arrival, especially in person, to create a sold-out or near sold-out situation.
Nevertheless, Marriott International trains its GMs and staff to maintain rate integrity, because the pricing tactic will provide sustainable and predictable revenue growth and because it reduces the legal risks associated with price discrimination. Although the authors of “Ethical Marketing” (2005) said that price discrimination, the illegal act of charging different prices for the same product to different consumers, is rarely enforced by the FTC or Department of Justice (Bowie, Klein, Laczniak, & Murphy, p. 138), Marriott International avoids questionable pricing tactics because doing so ensures its customers with an optimal experience and maintains its position as an ethical leader in the hospitality industry. In fact, the Ethisphere™ Institute has named Marriott one of the World’s Most Ethical Companies every year from 2008 to 2013 (2013 Sustainability Report Update, p. 24). Furthermore, the corporation suggested that “acting with integrity is a core value for our associates around the world…and ethical practices are deeply embedded in our heritage and culture” (p. 5).
Ethical Issues in the Distribution Model
As deeply embedded as ethical practices may be in Marriott International’s heritage and corporate culture, the reality is that Marriott’s pricing strategy is only as effective as its vast network of distributor’s willingness to adhere to the ethical guidelines. Cornell University researchers, who studied the correlation between pricing in the hospitality industry and distribution networks, pointed to previous studies that showed “the negative effects of failing to manage distribution properly, for example, by reducing prices in the face of anticipated low occupancy rates or high inventory” (Canina, Enz, & Noone, 2012, p. 7).
Specifically speaking to Marriott International’s situation, since it does not own most of the Marriott hotels, but, rather, acts as a franchisor, the corporation must rely heavily on its franchisees willingness to adhere to the pricing strategy on a day-by-day basis. The aforementioned Cornell research acknowledged that hotel owners and their staff are often “tempted to move to a lower category [of price] in the hopes of gaining more occupancy,” despite the fact that research has shown that doing so will be the “most costly in terms of negative RevPAR [revenue per available room] growth” (Canina, Enz, & Noone, 2012, p. 11). Hence, it is both unethical and counter-productive for members of Marriott’s distribution network to not follow the ethical guidelines on a daily basis.
Marriott International’s reputation as a global ethical leader and its relationship with its customers is at stake when ethical issues concerning pricing and distribution are presented. This paper offered an analysis of Marriott International’s pricing tactic and distribution model. To complete this analysis Marriott’s pricing strategy and its objectives for its product were explored. Additionally, price discrimination issues and any corresponding legal action that could be a potential risk for Marriott were addressed. Last, Marriott’s distribution model was described, as well as the potential ethical issues that are possible within the distribution network.
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