Adoption of Covid-19 safety certification and pricing strategy in the hotel industry

ABSTRACT

The tourism sector has voluntarily undertaken several initiatives to boost customer confidence in response to the COVID-19 pandemic. For example, in the hotel industry, three different strategies have been implemented: sending no COVID-19 safety signal; sending a moderate signal through a charter; or sending a strong signal through a label. This study aims to identify the main drivers of the hotels’ choice among these strategies and to analyze the influence of their choice on price setting. We estimate a system of three equations (hotel pricing, star rating, COVID-19 safety signal) on a sample of 418 rated hotels in the Hauts-de-France region. Results support three main findings: 1) star rating positively correlates with COVID-19 certification; 2) COVID-19 certification has a strongly negative impact on hotel prices; 3) star rating moderates positively the effect of COVID-19 certification on prices. Furthermore, error terms between the star rating level and COVID-19 certification equations are strongly correlated. Hence unobserved common factors play a role in the adoption of these quality signals. Our findings are consistent with the idea that managers implementing safety signaling strategies are more worried about recovery speed after lockdowns.

KEYWORDS:

• Covid-19 safety certification
• star ratings
• hotel room price
• hedonic pricing method

JEL CLASSIFICATION:

• L15
• L83
• C3

Disclosure statement

No potential conflict of interest was reported by the author(s).

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/00036846.2023.2177596

Notes

¹ The plan also includes a component referring to economic-financial measures and one relating to the preparation of a contract for reviving and transforming the tourism sector.

² https://www.adn-tourisme.fr/les-intentions-de-depart-des-francais-cet-ete/.

³ https://www.hautsdefrance-tourisme-congres.com/wp-content/uploads/2020/10/Mission-Attractivit%C3%A9-Hauts-de-France_Chiffres_cl%C3%A9s_bilan2019_version-finale.pdf.

⁴ More than 70 variables were constructed. We choose to focus on only those that are finally selected. The selection procedure is presented in the next section. The complete list of variables is available upon request.

⁵ Different methods exist in the literature to select the correct set of controls, and we find stepwise regression (Hocking, 1976) and the least absolute shrinkage and selection operator (LASSO) methods (Tibshirani, 1996). Stepwise regression is a family of automated methods consisting of stepwise inclusion or exclusion of variables chosen among a set of potential explanatory variables. The final model optimizes a given criterion. This method is criticized notably because of its lack of rigorrigour.

⁶ Results obtained when the PDS-LASSO equation alone is estimated are presented in appendix 4.

⁷ The number of one-star hotels in the sample is only 17 and among them 0 adopt a label. Hence, the estimated model necessarily provides a joint probability of being a one-star hotel with a label that is overestimated as 0.73% instead of 0. This, in turn, leads to an overestimation of the conditional probability.

Additional information

Funding

The work was supported by the Région Hauts-de-France and l’Agence Nationale de la Recherche [PROJET ANR-21- HDF1 – 0005 - 01].