Pricing Strategies and Considerations in Hospitality and Tourism
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Marketing for Tourism and Hospitality by Kotler Pricing Products: Pricing Considerations, Approaches, and Strategy
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Pricing Strategies and Considerations in Hospitality and Tourism
- 1. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Chapter 12 Pricing Products: Pricing Considerations, Approaches, and Strategy
- 2. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens “The real issue is value, not price.” -Robert T. Lindgren ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 3. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Chapter Objectives • Outline the internal factors affecting pricing decisions, especially marketing objective, marketing-mix strategy, costs, and organizational considerations • Identify and define the external factors affecting pricing decisions, including the effects of the market and demand, competition, and other environmental elements ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 4. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Chapter Objectives • Contrast the differences in general pricing approaches, and be able to distinguish among cost-plus, target profit pricing, value- based pricing, and going rate • Identify the new product pricing strategies of market-skimming pricing and market- penetration pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 5. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Chapter Objectives • Understanding how to apply pricing strategies for existing products, such as price bundling and price adjustment strategies • Discuss the key issues related to price changes, including initiating price cuts and price increases, buyer and competitor reactions to price changes, and responding to price changes ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 6. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Price • Price is the amount of money charged for a good or service • The only marketing mix element that produces revenue • Changing too much chases away potential customers, charging too little cuts revenue ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 7. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Factors to Consider when Setting Prices ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 8. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Internal Factors • Marketing Objectives –Survival –Current Profit Maximization –Market-Share Leadership –Brad Equity Growth –Product-Quality Leadership ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 9. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Internal Factors • Marketing Mix Strategy • Costs –Fixed vs. Variable Costs • Organizational Considerations ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 10. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens External Factors Affecting Pricing Decisions • Market and Demand • Cross Selling and Upselling • Consumer Perceptions of Price and Value ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 11. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens External Factors Affecting Pricing Decisions • Analyzing the Price – Demand Relationship • Price Elasticity of Demand • Factors Affecting Price Sensitivity ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 12. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Price Elasticity of Demand ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 13. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Factors Affecting Price Sensitivity • Unique Value Effect • Substitute Awareness Effect • Business Expenditure Effect ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 14. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Factors Affecting Price Sensitivity • End-Benefit Effect • Total Expenditure Effect • Sunk Investment Effect • Price Quality Effect ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 15. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens General Pricing Approaches • Cost-Based Pricing • Break-Even Analysis and Target Profit Pricing • Value-Based Pricing • Competition-Based Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 16. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens ProductProduct CostCost PricePrice ValueValue CustomersCustomers Cost Based Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 17. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens • BE= Fixed Costs/Contribution (SP-VC) • Example - Meal - SP = $20, VC = $8 • Fixed costs are $2400 a day • BE=$2400/$12 = 200 • Need to sell 200 meals @ $20 to break-even • VC = 40%, contribution = 60% • BE = $2400/.6 = $4000 Break-even ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 18. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Break-even Analysis or Target Profit Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 19. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens CustomerCustomer ValueValue PricePrice CostCost ProductProduct Value-based Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 20. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Customer Product Price Cost Value Competition-Based Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 21. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Pricing Strategies • New-Product Pricing Strategies • Existing-Product Pricing Strategies • Psychological Pricing • Promotional Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 22. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens New-Product Pricing Strategies • Prestige Pricing • Market-Skimming Pricing • Market-Penetration Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 23. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Market SkimmingMarket Skimming Market PenetrationMarket Penetration >Setting a high price for a new product to skim maximum revenues from the target market. >Results in fewer, more profitable sales. >Popular night club charges a high cover charge > Setting a low price for a new product in order to attract a large number of guests. >Results in a larger market share. >New Marriott Setting Initial Product Prices ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 24. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Existing-Product Pricing Strategies • Product-Bundle Pricing • Price-Adjustment Strategies – Volume Discounts – Discounts Based on Time of Purchase – Discriminatory Pricing – Yield Management • Non-Use of Yield Management • Last-Minute Pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 25. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Product-Bundling Pricing • Transfer surplus reservation price (the maximum price a customer will pay for a product) – Customer A will pay $60 for a Disney pass and and $120 for a hotel room,Customer B will pay $95 for the Disney pass and $80 for the hotel room – A hotel selling a two night package with pass for $350 will get both customer • Price-bundling also reduces price competition – by making it hard to figure price of components – In an airline and hotel package it is difficult to determine the price of the room ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 26. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Psychological Pricing • Price-quality relationship • Reference prices • Rounding • Length of the field ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 27. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Promotional Pricing • Temporary pricing of products below list price and sometimes below cost –Value Pricing –Price Sensitivity Measurement ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 28. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Price Sensitivity Measurement • Price Sensitivity Measurement (PSM) helps to establish a balance of price with product or service value based on consumer’s perceptions of that value. – The product or service to be cheap? – The product or service to be expensive? – The product or service to be too expensive, so expensive that you will not consider buying it? – The product or service to be too cheap, so cheap that you would question the quality? ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 29. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Other Pricing Considerations • Price Spread Effect – “The highest price menu item should not be more the 2.5 times the price of the lowest” • Price Points ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 30. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Initiating Price Cuts • Excess capacity • Dominate market • Increase market share ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 31. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Initiating Price Increases • Increase profits • Cost inflation • Excess demand ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 32. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Reactions to Prices Changes • Buyer’s reaction • Competitor’s reaction • Trade Ally’s reaction ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 33. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Responding to Price Changes • Why did competitor change price? – To gain market share? Use excess capacity? • Where is my product in its life cycle? • What is its importance in the company’s product mix? ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 34. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Best Practices • Boston Market • Royal Caribbean Cruises revenue management department • La Colombe D’Or cross-selling strategies ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 35. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Key Terms • Cost-plus pricing • Cross-selling • Discriminatory pricing • Fixed costs • Going-rate pricing ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
- 36. ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens Key Terms • Price • Survival • Upselling • Value-based pricing • Yield management/Revenue management ©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 07458 Kotler, Bowen, and Makens
Editor's Notes
- Tries to Determine the Price at Which a Firm Will Break Even or Make a Target Profit