Transcript Chapter Thirteen

Chapter Fourteen
The Hospitality Pricing Mix
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
The Basis of Pricing
 Marketing
stems from economics,
which responds to the customer
 Pricing should be based on:
– Research
– Economics
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Pricing Practices
 Cost-based
pricing is obsolete
 Using
revenue management and
customer focus
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
What Is Price?


Customer: the sum sacrifice for the product
Ways to change prices:
— Change the quantity of money or goods and services to be paid
by the buyer
— Change the quantity of goods and services provided by the
seller
— Change the quality of the goods and services provided by the
seller
— Change the premiums or discounts to be applied for quantity
variations
— Change the time and place of transfer of ownership
— Change the time and place of payment
— Change the acceptable form of payment
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Pricing as One of the Seven Ps
Used by the firm to represent the value of
the offering and the value of what the
customer receives
 Important in marketing

– Only part in marketing mix that generates
revenue
– Used to match supply to demand so financial
objectives are met
– Can attract attention and increase sales
– Establishes market position
– Can impact customer loyalty
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Pricing as One of the Seven Ps
(cont.)
Price is customer driven
 Product-driven pricing
 The “drivers of profit”

– two main components are sales revenue and
costs
– sales revenue = sales volume x price
– costs include variable and fixed costs

Important because profit is one of the
goals of any pricing decision
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Types of Costs
 Variable
costs
– Direct (“out of pocket”)
– Semi-variable
 Needed
regardless of activity
 Also increase with activity increase
 Fixed
costs
– Exist regardless of activity
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Cost-Based Pricing
 Cost
plus pricing
 Cost percentage or markup pricing
 Break-even pricing
 Contribution margin pricing
 $1 per thousand pricing
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Value-Based Pricing
 Choosing
price based on the
customer’s perception of value
 Not cost-based
 Loyalty and perceived value
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Value-Based Pricing (cont.)
 The
components of value: a way to
increase perceptions of price value
– Financial value
– Temporal value
– Functional value
– Experiential value
– Emotional value
– Social value
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Value-Based Pricing (cont.)
 Reference
pricing: a way to
increase the perception of price
value
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Psychological Pricing
 Prices
cause psychological reactions
 Pricing lining: price proximity can
increase the perception of quality
 Odd number pricing
 Awareness of how customers
perceive value relative to the
competition
 Velben effects
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Pricing Objectives
 Financial
objectives
– Pricing for profit maximization
 Ignores
the customer
 Ignores the marketing focus
 Volume
objectives
– Market share increases as prices are
lowered
– Increase occupancy or seat turnover
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Pricing Objectives (cont.)
 Customer
objectives
– Price stability instills confidence
– “Inducement to try”
– Price penetration
– “Enhancing the image”
– “Desensitize” the customer to price
– Pricing to differentiate the product
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Market Demand Pricing
 Demand
analysis:
– Consideration of all factors that go into
a pricing decision
– Able to buy
– Willing to buy
– “What is the market acceptance of
price?”
– Price elasticity
– Revenue management
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Price Customization and
Revenue Management
What revenue management is:
systematically matching demand for
services with supply to maximize revenue
 Revenue management practices:

–
–
–
–
Set most effective pricing structure
Limit reservations based on profit potential
Negotiate discounts with groups
Match market segments with room types and
price needs
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Price Customization and
Revenue Management (cont.)
 Revenue
management practices (cont.):
– Reservation agents need to be sales agents
– Provide reasons for lower rates
– Be consistent with prices across
intermediaries
– Might utilize “nesting” rules
– Revenue management needs a marketing
approach
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
International Pricing
 More
complex internationally
– Monetary exchange rates fluctuate
– Local competitors’ pricing tactics can
throw off rate structures
– Different perspectives of price value
relationship
– Different cultural practices related to
price quoting
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
The Last Word on Pricing




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
Common Mistakes in Pricing
Prices are too cost oriented. They are increased to cover
increased costs and don't allow for demand intensity and
customer psychology.
Price policies are not adapted to changing market
conditions. Once established they become "cast in cement."
Prices are set independent of the product mix rather than
as an element of positioning strategy. Integration of all
elements of the marketing mix is essential.
Prices ignore the customer psychology of experience,
perception of value, and the total product. These are the
true elements of price perception that will influence the
choice process.
Prices are a decision of management, rather than
marketing.
In the final analysis, the best price is the one that makes
the best overall contribution.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.
Shoemaker, Lewis, and Yesawich: Marketing
Leadership in Hospitality and Tourism, 4th edition
© 2007 Pearson Education, Upper Saddle
River, NJ 07458. All Rights Reserved.