Explaining Hotel Pricing Strategies Through Service Offerings: Evidence from A Mediation Model of People, Process, and Physical Evidence

Abstract

This study examines how the service Ps (people, physical evidence, and process)
shape the pricing strategies of a university-operated hotel and tests the
mediating role of services offered. Anchored in Service-Dominant Logic,
Customer Perceived Value Theory, and Signaling Theory, the researchers argue
that the service Ps (people, process, and physical evidence) influence pricing
primarily by strengthening the realized service bundle that guests experience
and evaluate. Data were gathered from 249 hotel guests using a structured
instrument. The gathered data were cleaned and analyzed using partial least
squares – structural equation modeling (PLS-SEM). The findings reveal that
people, physical evidence, and process do not have statistically significant
direct effects on pricing strategies. However, each service P significantly
predicts services offered, and services offered show a strong positive effect on
pricing strategies, demonstrating an indirect-only (functionally full) mediation
pattern. These results indicate that in the context of a university-operated hotel,
pricing is best explained by the realized value-laden service bundle delivered to
guests rather than by individual evaluations of staff performance, procedures,
or tangible cues. The study contributes to services marketing and hospitality
pricing literature by positioning services offered as a proximal mechanism
linking the service Ps to pricing strategies, and it offers actionable guidance for
administrators to pursue value-based pricing by standardizing and
communicating clear service offerings supported by capable staff, efficient
processes, and fit-for-purpose facilities.