Analyzing the relationship between pricing strategy and customer retention in hotels: A study in Albania

Research problem

There are many studies on pricing strategies and customer retention in the hospitality industry, but little attention has been given to the impact of economy pricing strategies on hotel customer retention, especially in Albania. Therefore, this study aims to investigate the impact of economy pricing strategies on customer retention in selected international hotels in Albania.

The research aims to assess the level of use of economy pricing strategies and their impact on customer retention in the international hotel industry in Albania, with the aim of improving the development of hotel services in a competitive market environment.

This study will provide valuable insights into the effectiveness of cost-effective pricing strategies that comparable hotels can use to retain guests. The results will help hoteliers evaluate their current pricing strategies and make any necessary adjustments to improve guest retention.

Additionally, this research will help business leaders identify effective retention techniques and areas for improving customer retention policies.

Research objectives

The main research objectives of this study are:

Research questions

The following research questions will guide this study:

Research question one (RQ1): Is there a relationship between economic pricing strategies and customer retention in international hotels in Albania?

Research question two (RQ2): What is the impact of economy pricing strategies on customer retention in selected international hotels in Albania?

Conceptual framework

This study aims to investigate the relationship between economy pricing strategies and customer retention rates in selected international hotels in Albania. Economy pricing strategy is considered as the independent variable, while customer retention is the dependent variable. The conceptual framework in the Figure 1, below illustrates the relationship between the two variables:

Figure 1. The relationship between pricing strategies and customer retention.

Based on the relationship between the independent and dependent variables, the research hypothesis are as follow:

Null hypothesis (H₀): There is no significant relationship between economy pricing strategies and customer retention in international hotels in Albania.

Hypothesis one (H₁): There is a significant positive relationship between economy pricing strategies and customer retention in international hotels in Albania.

Literature review

The importance of pricing is an important part of the marketing mix that generates revenue for a company (Asamoah and Chovancová, 2011). It is a flexible variable that can be adjusted based on market demand (Zhang et al., 2017) states that price determines the amount buyers are willing to pay for a product or service based on their decision. Price is one of the four P’s of the marketing mix that consumers consider before making a purchase decision (Kotler et al., 2022a). When determining the pricing strategy, it is essential to consider three critical factors, including the perception of the product’s value by buyers, the number of buyers in the market, and their price sensitivity (Azad and Subrahmanyam, 2022).

Furthermore, understanding how buyers will respond to prices requires research and analysis. Price elasticity, or the sensitivity of buyers to price changes, impacts the demand for products. The degree of change in demand in response to a change in price is known as price elasticity. According to Agwu (2018), when buyers are highly sensitive to price changes, they buy more of a product at lower prices and less of it when the price is higher. This indicates that the demand for the product is elastic with respect to price. Buyers are more likely to purchase products when their prices decrease and less likely to purchase them when their prices increase. In contrast, when demand for a product remains relatively stable and buyers are not sensitive to price changes, the demand is price inelastic (Collado et al., 2017).

The pricing strategy is an important aspect of marketing as it affects both revenue and consumer behavior. The pricing environment is evaluated from the viewpoint of the firm and its strategies, as well as from the consumer’s perspective, with consideration of external influences such as government policies and competition (Kotler et al., 2022b). Buyers may be individuals or firms who purchase the entire product or only parts of it, aiming to satisfy their needs or requirements (Subramanian and Azad, 2021). To meet these requirements, customers use various parameters such as price and quality to determine their purchasing decisions.

Different pricing models are analyzed after considering these factors, and considerations are given to their effective implementation, balancing price levels, and their impact on consumer behavior (Geng et al., 2018). Despite efforts of financial experts to understand pricing and estimation methods, reliable pricing models remain elusive (Chen et al., 2016).

Pricing strategy

Pricing strategy is an important part of a company’s marketing mix as it directly affects the company’s profitability and its competitiveness in the market. Before choosing an appropriate pricing strategy for its product or service, a company must consider several factors such as customer demand, production costs, and competition (Kotler et al., 2022a).

Businesses can use a variety of pricing strategies, including cost-plus pricing, value-based pricing, and penetration pricing. Cost-plus pricing involves adding a price to the cost of producing a product to determine the selling price. On the other hand, value-based pricing focuses on the perceived value of a product in the eyes of customers rather than the cost of production. Penetration pricing is often used to enter a new market, where a company sets a low price to attract customers and gain market share (Kotler et al., 2022a).

The choice of pricing strategy depends on the company’s objectives, the target market, and the competitive environment. For example, a hotel company can use a dynamic pricing strategy to adjust room rates based on occupancy levels and demand fluctuations (Xiang et al., 2017). Alternatively, luxury hotels may adopt a premium pricing strategy, charging high prices to reflect the exclusivity and quality of their services (Luo et al., 2019).

In summary, pricing strategy plays a vital role in a company’s marketing efforts, and a well-designed pricing strategy can help a company achieve its sales and revenue targets. However, market conditions, customer behavior and competition should be considered when selecting an appropriate pricing strategy for a product or service.

Economy pricing

According to Papatla and Zhang (2021), economic pricing is a pricing strategy when a product or service is offered at a lower price than competitors. Companies often use this tactic to attract price-sensitive customers and increase their market share. The success of economy pricing depends on several factors such as the company’s cost structure, elasticity of demand, and competition. Additionally, research by Papatla and Zhang (2021) highlights that economy pricing has a positive impact on customer satisfaction and loyalty, which can lead to long-term profitability for the business. In the hotel industry, according to Dai and Zhang (2017), economy pricing is used to balance room rates and room demand for future dates. The pricing strategies are influenced by the principles of supply and demand, with lower prices when the demand is low and higher prices when the demand is high. Neubert (2017) also noted that for pre-orders further from the arrival date, the probability of return is generally greater and prices tend to increase as the arrival date approaches.

In general, economy pricing is a widely used pricing strategy in various industries, including food retail and hospitality. The success of this pricing strategy depends on several factors, such as elasticity of demand, competition, and cost structure, and can have a significant impact on customer satisfaction and loyalty.

Customer retention management

Effective customer retention management has become essential for businesses, especially in the hospitality industry. According to Ascarza et al. (2018), if the main objective of hotels is to attract customers, retaining them has become equally important. Research by Del Rio Olivares et al. (2018) shows that a 5% increase in customer retention can lead to increase of profit of 20% to 90%.

Therefore, companies need to manage their customers throughout their lifecycle, from suspect to partner or defender, as explained from Han and Hwang (2018).

In the past, many hotels did not prioritize guest satisfaction, leading to high churn, known as the ‘broken barrel’ hypothesis. As Hanaysha (2018) pointed out, this approach leads to a constant influx of new customers and the loss of existing customers. However, reducing churn can significantly improve profits. For example, Razzaq et al. (2018) found that a 5% reduction in churn can increase profits by 20% to 100%.

Several factors influence guest retention in the hospitality industry. According to Kung and Zhong (2017), adaptability and consistency in the decision-making process can affect customer loyalty patterns. Lee and Fay (2017) also highlight the importance of adaptability in the decision-making process as it shapes hotel strategy and processes. Moreover, the passive behavior of hotel staff greatly affects the level of customer loyalty (Luo et al., 2018). Luo et al. (2018) found that the best hotel staff do not always fully understand the importance and consequences of customer retention, as they often view it as just another characteristic of the hotel. Therefore, customer retention should be integrated into organizational goals and practices, and employees should be trained accordingly (Reen et al., 2017).

Leadership should also provide employees with control checks and learning opportunities to motivate them to prioritize customer retention (Subrahmanyam, 2018). A combination of various strategies, including promotional offers, is the best way to retain customers in the hospitality industry (Ferdous Azam and Karim, 2017).

Guest satisfaction and loyalty are key to improving hotel guest retention. Highly satisfied customers tend to remain loyal and contribute significantly to a hotel’s revenue by repeat purchases and recommending the hotel to others (Kang and Kim, 2017). Additionally, satisfied customers are less likely to switch to competitors and are easier and cheaper to maintain, requiring less training and marketing effort (Subrahmanyam and Azad, 2019).

With changing demographics, economics and competitive factors, the cost of acquiring new guests is increasing, forcing hotels to focus on profitable guest retention and building lasting relationships with them. Therefore, hotels must prioritize guest satisfaction and value to ensure guest retention and loyalty.

Ethical statement

This study received retroactive ethical approval from the council of ethics of University “Aleksander Moisiu” as this was a low-risk study. Written informed consent was obtained from all participants prior to completing the survey.

Study design

This study uses a quantitative strategy because it uses statistics as a time-saving tool and requires less effort and resources. Moreover, using this method is the best way to quantify and analyze the relationship between variables. In this study, an attempt was made to quantify the economy pricing strategy as an independent variable to determine the relationship with customer loyalty in selected international hotels in Albania.

Participant selection

Data collection took place from June 2022 to January 2023 in the cities of Tirana, Durres, and Vlora, where a purposive sampling strategy was employed to select seven international hotels as participants. Inclusion criteria for hotel selection were based on their international status and availability to accommodate data collection. The sample size was determined using the number of rooms in each hotel to ensure representation and diversity. Randomization was achieved by assigning a unique identification number to each hotel and using a random number generator to select the participating hotels. The method of random sampling aimed to provide equal opportunities for all customers to contribute to the study.

The selected hotels included Rogner, Sheraton, and Hilton in Tirana; Adriatik, Tropikal, and Palace in Durres; and Vlora International Hotel in Vlora. These hotels were chosen based on their relevance and representation within the international hotel sector in Albania.

By employing a purposive sampling strategy, randomization, and sample saturation, this study ensured the inclusion of diverse international hotels in the sample, increasing the generalizability of the findings. The rationale behind these methodological choices was to obtain a comprehensive understanding of the relationship between economy pricing strategies and customer retention in the international hotel industry in Albania.

Data collection

As mentioned in the previous section, the study examines the relationship between economy pricing strategies of international hotels and customer loyalty in Albania using quantitative techniques and questionnaires. A survey consists of several questions asked of respondents based on their opinions and past experiences at a particular hotel. The study used surveys based on various scientific sources. The questionnaire was adapted from reliable academic work published in reliable international publications modified from Njeru and Karega (2017) and Rao and Kartono (2009). To ensure the survey’s suitability for the study’s context, the modified version was piloted prior to the main data collection. The pilot study involved a small group of participants who completed the survey and provided feedback on its clarity, relevance, and comprehensibility. Based on the pilot study’s findings, necessary revisions were made to enhance the questionnaire’s overall quality and ensure its alignment with the research objectives. The participants completed the survey and provided feedback on the aspects such as clarify, relevance and comprehensibility of the questions. The pilot study served as an iterative process to refine and improve the questionnaire. This iterative process allowed for the identification and resolution of any potential issues or ambiguities in the survey instrument, ensuring its effectiveness in collecting the desired data.

The language used in the modified questionnaire was Albanian for Albanian citizens and English for the foreigners. By adapting the survey to the local language, it was possible to better understanding and improve response rates among the Albanian population. And the questionnaire in English language gave the better understanding for the non-Albanian participants (Trebicka and Tartaraj, 2023).

The survey was distributed in English language and Albanian language, to ensure maximum participation and understanding among the respondents. Language translation was carried out by bilingual experts to maintain the accuracy and integrity of the survey items.

To distribute the questionnaires, a systematic approach was adopted. The hotels were personally visited and selected international hotels in Tirana, Durres, and Vlora and the questionnaire were distributed to eligible respondents. The hotel management and staff were informed about the research objectives and provided support in ensuring the questionnaires reached the target participants. The survey administration followed ethical guidelines, ensuring voluntary participation and maintaining respondent confidentiality.

By modifying and piloting the survey instrument, utilizing established academic sources, employing a suitable language for distribution, and adopting a systematic approach to questionnaire administration, this study aimed to gather reliable and relevant data on the relationship between economy pricing strategies and customer loyalty in international hotels in Albania.

Each question in the questionnaire was rated using a Likert scale. The scale goes from 1 (totally disagree) to 5 (totally agree).

The study attempted to collect personal information about respondents in the first half of the survey, such as their age, level of education, gender and marital status. The second part of the survey included questions on economy pricing strategies and customer retention. The data collected from survey questionnaires were compiled into a consolidated dataset to facilitate efficient data management and analysis. In order to protect the privacy and confidentiality of the respondents, steps were taken to anonymize the data. Personal identifying information, such as names, addresses, and contact details, were removed or replaced with unique identifiers to ensure that individual participants could not be identified. After this, for the closed-ended questions, coding was applied to transform the responses into categorical values for analysis. This coding process involved assigning specific codes or categories to different response options to facilitate data analysis and interpretation.

The collected data, whether in electronic or paper format, were entered into a spreadsheet for further analysis. During the data entry phase, careful attention was paid to minimizing errors by implementing double-entry techniques. The data were securely stored and managed throughout the study. Backup copies of the data were created to prevent data loss or corruption. To ensure the accuracy and reliability of the data, a process of data validation and verification was carried out. This involved cross-checking the entered data against the original survey responses to identify any discrepancies or errors. Data cleaning techniques were employed to address missing or inconsistent data.

Data analysis

Several statistical tests were performed using IBM SPSS Statistics software (version 27.0) to examine the relationships and test the research hypotheses. The reliability of the survey questions was assessed using the built-in reliability analysis test in SPSS. This test calculates various reliability measures, such as Cronbach’s alpha coefficient, to evaluate the internal consistency of the questionnaire items. The reliability analysis provides information on the reliability and consistency of the questions used in the study.

Cosstab and chi-square analysis: To explore the relationship between variables, crosstabulation (crosstab) and chi-square tests were conducted. These tests allow for the examination of associations and dependencies between categorical variables. The crosstab analysis provides a contingency table, and the chi-square test determines whether there is a statistically significant association between the variables.

Model summary: In the multiple regression analysis, the model summary provides information on the overall goodness of fit of the regression model. It includes measures such as R-squared, adjusted R-squared, and the F-test statistic, which indicate the proportion of variance explained by the independent variables and the overall significance of the regression model.

ANOVA tests were performed to assess the significance of differences among group means. In the context of the study, ANOVA could be used to examine differences in customer loyalty based on different levels of the independent variable (economy pricing strategy). It helps determine whether these differences are statistically significant.

By utilizing these statistical tests in SPSS, the study aimed to evaluate the reliability of the questionnaire, explore associations and dependencies between variables using crosstab and chi-square analysis, examine the overall goodness of fit of the regression model through model summary, and assess the significance of differences among group means using ANOVA. These analyses contribute to the understanding of the research hypotheses and provide insights into the relationships between variables.

Analysis of participants’ demographics

This section includes an analysis of demographic data collected from participants who participated in the study, such as age, education level, marital status, and gender.

Distribution of clients by gender

Table 1 and Figure 2 illustrate the distribution by gender of clients participating in this study. Data was collected from seven international hotels in Albania. Of the 572 participants, there were 378 men and 194 women. As can be seen, most of the participants were men (Trebicka and Tartaraj, 2023).

Figure 2. Distribution of customer gender (n=572).

Customer age

From the data in Table 2 and Figure 3, we find that customer age has a significant effect. The study included participants staying at seven international hotels in Albania, covering a wide range of ages. Specifically, there are 39 people aged 18-23, 79 people aged 24-29, 78 people aged 30-35, 98 people aged 36-41, 104 people aged 42-47, 118 people between the ages of 48 and 53 and 56 participants aged 53 and over.

Figure 3. Customer’s age distribution (n=572).

It is particularly important to note that the majority of respondents were between 48 and 53 years old. This finding suggests that this age group may be particularly important for hoteliers to meet the needs and preferences of their guests.

Customers’ marital status

From Table 3 and Figure 4, it can be seen that the visitor’s marital status plays a certain role in this study. A total of 389 married guests from seven international hotels in Albania participated in the study, 171 single guests from seven international hotels in Albania participated in the study, and 5 divorced guests from seven international hotels in Albania participated in the study. Married clients made up the majority of study participants.

Figure 4. Customer marital status distribution (n=572).

Customers’ education

According to Table 4 and Figure 5, it can be seen that customers’ educational backgrounds played a role in this research. A total of nine customers with high school diplomas from seven international hotels in Albania participated in the current research, 34 customers with vocational school certificates from the same hotels participated in the current study, and 371 customers with university degrees participated in the current study. Also, 126 guests with graduate degrees from seven international hotels in Albania participated, and 32 guests with certificates other than those listed participated. It may be concluded that the majority of participants were university graduates.

Figure 5. Customer’s education distribution (n=572).

Hypotheses testing

In this section, data obtained through questionnaires from seven different international hotels in Albania are analyzed. As stated in the conceptual framework, the study aims to quantify and assess the resulting research hypotheses. The test of each research hypothesis are done with the use of reliability analysis to assess the dependability of the independent and dependent variables, a relationship method to evaluate the relationship between the independent and dependent variables, and multiple regression analysis to assess the developed research hypothesis.

Based on Table 5, the reliability test used to examine the four questions related to economy pricing shows that the first question, asked whether the specific international hotel is setting prices low to attract more customers to stay at their hotels, had an Alpha value of.842. The second question asks if a particular international hotel offers continuous discounts to its customers, with an alpha value of 0.851, considered a reliable economy pricing element to measure the relationship with customer loyalty for the survey in international hotels in Albania. The third question related to economy pricing asks whether a particular international hotel employs a pricing strategy that allows it to compete with other international hotels to attract more customers. It has an alpha value of 0.846, indicating that it is a reliable measurement. The fourth question asks if an international hotel has lowered the price of rooms by offering fewer services, such as rooms without breakfast. It has an alpha value of 0.847, which is also considered a reliable economy pricing element to study the relationship with customer retention rates in international hotels in Albania.

The relationship between the independent and dependent variable

This section presents the findings of the relationship analysis conducted between the independent variable (economy pricing strategy) and the dependent variable (customer retention) (Figure 6).

Figure 6. Relationship between customer retention and economy pricing strategy.

H₁: There is a significant and positive relationship between economy pricing strategy and customer retention. Examining the relationship between the variables using a Crosstab as shown in Table 6 shows that out of 572 customers surveyed, 73 customers rated low concerning the relationship between economy pricing strategy and customer loyalty, 201 customers rated as fair concerning the relation between economy pricing strategy and customer retention at selected international hotels in Albania, and 298 customers rated high concerning the relation between economy pricing strategy and customer retention at selected international hotels in Albania. Based on the above results, we can conclude that the majority of customers rated high concerning the relationship between economy pricing strategy and customer retention at selected international hotels in Albania.

As the Table 7 shows, the chi-square statistic appears in the value column of the chi-square test table, just to the right of ‘Pearson chi-square’. The results show that the chi-square statistical value is 115.897. The p-values are in the same row of the Asymptotic Significance (2-sided) column (.000).

This result is significant because the P value is less than 0.05. This demonstrates a significant relationship between economy pricing strategies and customer retention rates in selected international hotels in Albania.

Multiple regression analysis

This section presents the results of multiple regression analysis to measure the research hypothesis developed according to the research model.

Model Summary Based on the model summary is shown in the Table 8, the value of Adjusted R Square for the regression analysis is.690. This suggests that 69% of the changes in the dependent variable can be explained by the changes of independent variables included in the model.

ANOVA

As presented in Table 9, the ANOVA analysis was conducted and it revealed that the F-value was 162.876, and the significance level was .000. Since the p-value is less than .05, it can be concluded that there is a statistically significant positive association between each pricing variable and customer retention at selected international hotels in Albania.

Coefficients

Multiple regression tests were performed between economy pricing strategy as an independent variable and customer loyalty as a dependent variable to test the research hypotheses previously developed for selected international hotels in Albania. As shown in Table 10, multiple regression analysis revealed a significant relationship between economy pricing strategies and customer retention. The B value is 0.238, the Beta value is 0.116, and the significance level is.000.

This result suggests a positive relationship between economy pricing strategies and customer loyalty. The results support the research hypothesis that there is a positive and significant relationship between economy pricing strategies and customer loyalty in Albania.