The Price of Hospitality

1
Chapter 11

• The Price of Hospitality

2
Definition of Value
Value
Product Service Location Ambience
Image Price
3
Pricing Objectives

• Sales-oriented
• Profit-oriented

4
Determinants of Price

• Demand
• Price sensitivity
• Relevant range
• Supply
• Goods
• Labor
• Capital
• Competition

5
Pricing Method Cost-based
Multiplier 1 ? Desired food cost Tentative
selling price Food cost ? Multiplier
6
Pricing Method Cost-based
Multiplier 1 ? Desired food cost Tentative
selling price Food cost ? Multiplier E.g. Desir
ed food cost 40 Shrimp dinner food cost
6 Multiplier 1 ? 40 2.5 Tentative selling
price 6 ? 2.5 15
7
Pricing Method Contribution Margin (CM)
Average CM per guest Non-food costs Desired
profit Number of guests expected Tentative
selling price Average CM per guest Food
cost E.g. 10,000 guests per month Non-food
costs 30,000 Desired profit 5,000 Shrimp
dinner food cost 6
8
Pricing Method Contribution Margin (CM)
Non-food costs Desired profit Number of
guests expected
Average CM per guest Tentative selling price
Average CM per guest Food cost E.g. 10,000
guests per month Desired profit
5,000 Non-food costs 30,000 Shrimp
dinner food cost 6 Average CM per guest
3.5 Tentative selling price 3.5
6 9.5
30,000 5,000 10,000
9
Contribution Pricing
Menu Food Menu Food
Cost Contribution Item Cost Price
Margin Spaghetti 1.13 4.50
25 3.37 Strip steak 6.00
15.00 40 9.00
10
Pricing Method Demand-based

• Skimming
• Penetration pricing

11
Break-even Analysis

• Break-even point (BEP)
• Total revenue total costs
• Sales mix

12
Selecting the Final Price

• Price points
• First digit
• Length
• Price range
• Price changes

13
Hotel Pricing

• Cost-based
• Hubbart formula
• Demand and supply
• Room rate range
• Discounting
• Incremental cost
• Yield management

14
Yield Management High Demand Tactics

• Require minimum stays
• Limit or eliminate local promotion
• Restrict low-profit rate categories
• Sell to groups that book meeting space and use
  food and beverage service
• Move price-sensitive groups to low demand days

15
Yield Management Low Demand Tactics

• Provide flexibility
• Go after new markets

16
Critical Areas of Yield Management

• Forecasting
• Computer database
• Employee training
• Employee evaluation and compensation

17
Package Prices

• Appeal to specific market
• Enhance customer satisfaction
• Increase revenue
• Increase demand during off season
• Improve efficiency and forecasting
• Gain favorable publicity
• Provide greater convenience and economy for guests