Hospitality and Tourism

1
(No Transcript)
2
Chapter 11
Pricing Products
Pricing Strategies
Factors Affecting Price
3
Chapter Objectives

• Explain the concept of price.
• Identify typical pricing strategies.
• Describe how hospitality and tourism businesses
  use discounting.
• Describe the concept of supply and demand.
• Explain elasticity of demand.
• Explain how the product life cycle affects price.

4
What Is Price?

• There are several terms for price in the
  hospitality and tourism industries.

price the value placed on goods or services
being exchanged
Section 11.1
5
What Is Price?

• Price is more than just the cost of an item.
• Price is also the value that the item holds for
  the consumer.

Section 11.1
6
Pricing Hospitality Tourism

• A number of techniques are used to assign prices
  to hospitality and tourism products.

Section 11.1
7
Pricing Hospitality Tourism
Pricing Techniques
Airlines
Use a class system
Cruise lines
Based on cabin size and location
Hotels
Based on room categories
Car rentalcompanies
Based on automobile type
Restaurants
Set à la carte or prix fix
Section 11.1
7
8
Pricing Hospitality Tourism
Pricing Strategies
Promotional pricing
Psychological pricing
Market-penetration pricing
Breakeven pricing
Cost-based pricing
Discounting
Section 11.1
8
9
Promotional Pricing

• Hospitality and tourism businesses use
  promotional pricing strategies to generate sales
  during traditionally slow periods.
• Losses incurred from lower-priced promotional
  items will be made up by purchases of other items.

Section 11.1
10
Promotional Pricing

• Lodging properties also use promotional pricing.
• Packaging several products together for one price
  adds value for the customer and creates a
  positive image for the business.

Section 11.1
11
Psychological Pricing

• The price of a product has a psychological impact
  on customers.

prestige pricing pricing based on consumer
perception
Hotels and restaurants that focus on establishing
a luxury image use prestige pricing.
Section 11.1
12
Market-Penetration Pricing

• Market-penetration pricing happens when a company
  prices its products at or below cost just to
  enter the market and gain a market share quickly.

Section 11.1
13
Breakeven Pricing

• For breakeven pricing, a business determines the
  price of a product or service at which it will
  break even.
• To break even, the price must generate enough
  revenue to cover the costs and expenses of the
  product.

Section 11.1
14
Cost-Based Pricing

• One of the easiest methods used to set price is
  markup.

markup the difference between the retail or
wholesale price and the cost of an item
cost-plus pricing pricing products by
calculating all costs and expenses and adding
desired profit
When using cost-plus pricing, the goal is the
sameto make a profit.
Section 11.1
15
Discounting

• Discounting is a strategy used to reward consumer
  behavior, such as booking early, buying
  off-season, or buying in volume.
• Prices are adjusted by a certain percentage, or
  special rates are assigned to specific periods.

Section 11.1
16
Special Pricing Strategies

• Price lining is selling all the products in a
  product line at specific price points.
• Bundle pricing is a strategy that involves
  selling several items as a package for a set
  price.
• Loss-leader pricing is pricing an item at cost or
  below cost to draw customers.
• Yield-management pricing is pricing items at
  different prices to maximize revenue when limited
  capacity is involved.

Section 11.1
17
Value, Price, and Strategy

• It is important to know the value of a product or
  service before pricing it.
• Value differs from one consumer to another.

Section 11.1
18
Name Your Price
According to a study in 2003, 75 percent of
travelers who use the Internet visit three or
more Web sites before purchasing their tickets.
Their decisions depend on price, not brand
loyalty. Online travel sites, such as Priceline
and Hotwire, take advantage of the price-minded
travel consumer.

• Operating an e-tail business on an electronic
  channelthe Webcan be costly, due to design,
  delivery, returns, and operating expenses.
• Though Many larger dot-com companies crashed in
  the 1990s, small stores like Harris Cyclery of
  West Newton, Massachusetts, actually increase
  sales using a basic Web site. Today, a third of
  Harriss bicycle business rides in on the Web to
  get hard-to-find parts and personal service.
• Describe an e-businesss home page to your class
  after viewing one through marketingseries.glencoe.
  com.

These name-your-price travel sites allow the user
to request a certain price for a ticket, provide
credit-card details, and then purchase the
ticket. Online travel services are reaching
millions of users. However, there are drawbacks
for some consumers, such as no refunds for
tickets and inconvenient flight times.
For more information, go to marketingseries.glenco
e.com.
Section 11.1
18
19
11.1

• What is cost-plus pricing?
• How do hospitality and tourism businesses use
  discounting?
• Describe the concept of yield management.

1.
2.
3.
Section 11.1
20
External and Internal Factors

• External and internal factors can affect
  product-pricing decisions.

Section 11.2
21
External and Internal Factors

• If the supply of an item is limited, the price is
  usually higher.

supply the amount or quantity of goods and
services that producers provide at various prices
How much product a company will sell is directly
related to demand.
demand the amount or quantity of goods and
services that consumers are willing to buy at
various prices
Section 11.2
22
External and Internal Factors

• Fluctuating demand can be caused by seasonal
  changes.

elasticity of demand the variation of consumer
demand due to a change in price
When demand increases because the price
decreases, or vice versa, there is elasticity of
demand.
Section 11.2
23
External and Internal Factors

• To be competitive, a business must price its
  products lower than its competitors products to
  draw customers.

Section 11.2
24
External and Internal Factors

• A business must consider the economic
  environment.
• Factors that affect pricing conditions include
  periods of recession and state and local taxes.

Section 11.2
25
External and Internal Factors

• Environmental conditions that affect pricing
  decisions and consumer demand include

• War or threat of war
• Terrorist acts
• Bad weather

Section 11.2
26
External and Internal Factors

• A business must first look at the cost of doing
  business to determine price.
• To make a profit, a business must cover expenses
  in developing and delivering a product.

Section 11.2
27
Internal Factors

• Pricing decisions are made by senior management
  staff, the marketing or sales department, or by
  company policy.
• Factors such as the companys marketing
  objectives and marketing mix must be considered
  for pricing to be effective.

Section 11.2
28
The Product Life Cycle and Pricing

• The stages of a products life cycle are

Maturity
Decline
Growth
Introduction
Section 11.2
29
The Product Life Cycle and Pricing
Maturity
Decline
Growth
Introduction
Section 11.2
29
30
Prices Subject to Change

• Customers want the best value for their money,
  and businesses want to sell as much product as
  possible.
• When a products price is set, it should be
  reviewed regularly to determine if adjustments
  are necessary.

Section 11.2
31
11.2

• What is meant by elasticity of demand?
• What are some of the internal and external
  factors affecting price?
• What is the effect of the growth stage on price?

1.
2.
3.
Section 11.2
32
Checking Concepts

1. Define the term price.

1. Identify who decides if exchanging money for a
   product is worth the benefit.

1. List the typical pricing strategies.

continued
33
Checking Concepts

1. Give two examples of discounting in hospitality
   and tourism.

1. Explain consumer demand.

1. Describe how the economy may affect prices.

continued
34
Checking Concepts

1. Explain how prices are affected during a
   products decline.

35
End of
36
(No Transcript)