Download Competitors Prices and Offers

Competitors Prices and Offers
- Competitor’s prices and their possible reactions to a company’s own pricing moves are other external
factors affecting pricing decisions
- A meeting planner scheduling a meeting in Sydney will check the price and value of competitive hotels
- A hotel salesperson must learn the price, quality and features of each competitors offer
- Once they aware, can use this info as a starting point for deciding their own pricing
Other External Elements
- Inflation, boom or recession and interest rates affect pricing decisions
- Recessions force restaurants to reduce their prices, but most cannot offer the same product at a lower
price and still survive so they create new menus or lower-cost items at a lower price
- All areas of the environment can affect pricing
- Meeting new regulations can cause costs to increase
- Governments can streamline processes, reducing costs
- If pro environmental groups succeed in getting all pesticides banned, good prices may increase
- Marketers must know the laws concerning price and make sure their pricing policies are legal
General Pricing Approaches
- Price is somewhere between one that is too low to produce a profit and one too high to produce demand
- The cost based approach (cost-plus pricing, break even analysis and target profit pricing)
- The value based approach (perceived value pricing)
- The competition based approach (going rate)
Cost Based Pricing
- Cost-based pricing- Adding a standard mark up to the cost of the product
- F&B managers use this method to decide wine prices. Cost as a percentage of selling price is another
commonly used pricing techniques in the restaurant industry
- Some restaurants target a certain food cost then price their menu items accordingly
- The adjustment figure varies depending on the volume and efficiency of the operation
- In high volume, limited menu operations, it is lower
- Using this technique it is advisable to use prime cost, the cost of labor and food when determining menu
prices
- Does using standard mark-ups to set prices make logical sense? Generally No. any pricing method that
ignores current demand and competition is not likely to lead to the best price.
- Most managers use cost as a % of selling price to determine menu prices.
Break-Even Analysis and Target Profit Pricing
- Firm tries to determine the price at which it will break even
- E.g. need to sell this much at this price to break even
- Target profit pricing- we want to sell this much, so need to charge this much to achieve that
Value based pricing
- Uses the buyer’s perceptions of value, not the seller’s cost as the key to pricing
- Find out what buyers are willing to pay and then set it at that price
- This means you cannot design a product and marketing programs and then set the price
- Price is considered along with the other marketing mix variables before the marketing program is set
- The company uses non price variables in the marketing mix to build perceived value in the buyers’ mind,
setting price to match the perceived value
- If the seller charges more than the buyers’ perceived value, its sales will suffer
Value based pricing
- The price of a hotel room may vary according to the type of customer
- A rate for individual business guests, a group rate for ten or more, a convention rate for large functions
- A successful guest price mix depends on study of the behaviour profiles of major guest segments
- The most distinguishing profile characteristics of these two major segments is that:
- Business travellers exhibit inelastic price behaviour
- Leisure travellers show an elastic price response
Competition-based pricing
- A strategy of going-rate pricing is the establishment of price based largely on those of competitors, with
less attention paid to costs or demand
- A firm might charge the same, more, or less than major competitors
- When elasticity is hard to measure, firms feel that the going price represents the collective wisdom of the
industry concerning the price that will yield a fair return
- They feel that holding to the going price will avoid harmful price wars
Introductory pricing strategies
- Prestige pricing- hotels or restaurants seeking to position themselves as luxurious and elegant enter the
market with high prices to support this position
- Market-skimming pricing- setting a high price when the market is price insensitive
- Market-penetration pricing- set a low initial price to penetrate the market quickly and deeply, attracting
many buyers and winning a large market share
- Several conditions favour setting a low price:
- The market must be highly price-sensitive so that a low price produces more market growth
- There should be economics that reduce costs as sales volume increases
- The low price must help keep out competition
Existing product pricing strategies
- Product—bundling pricing- combine several products and offer the bundle at a reduced price. E.g. hotels
sell specially priced weekend packages
- Consumers can promote the sales of products that consumers might not otherwise buy. E.g. 3 park pass,
wet and wild wasn’t popular so they put it in a bundle to force people to go to the least popular park
- Has two major benefits to hospitality and travel organisations:
- Customers have different maximum prices or reservation prices they will pay for a product
- The price of the core product can be hidden to avoid price wars or the perception of having a low quality
product
Price adjustment strategies
- Volume Discounts - most hotels have special rates to attract customers who are likely to purchase a large
quantity of hotel rooms.
- Discounts Based on Time of Purchase - seasonal discounts allow the hotel to keep demand steady during
the year.
- (IMPORTANT)Discriminatory pricing refers to segmentation of the market & pricing differences based on
price elasticity characteristics of these segments. E.g. a museum who charges a student, adult, pension and
child price.
- The company sells a product or service at two or more prices, although the difference is not based on costs
- It works to maximise the amount that each customer pays
- Price discrimination discriminates in favour of the price sensitive customer- e.g. pensioners and students
don’t have as much money as adults therefore they get cheaper
- Low variable costs combined with fluctuations in demand make price discrimination a useful tool for
smoothing demand and bringing additional revenue and profits
Discriminatory pricing (Important)
- To price-discriminate successfully the follow criteria must be met:
- Different groups of consumers must have different responses to price; they must value the service
differently
- Different segment must be identifiable and a mechanism must exist to price them differently
- There should be no opportunity for persons in one segment to sell their lower priced purchases to other
segments
- A segment should be large enough to make it worthwhile
- The cost of running the price discrimination strategy should not exceed the incremental revenues obtained
- Customers should not become confused by different prices
Revenue Management (important)
- Involves upselling, cross-selling, and analysis of profit margins and sales volume for each product line.
- Concept is to manage revenue and inventory effectively by pricing differences based on the elasticity of
demand for selected segments