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Pricing Products
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Chapter 11
Pricing Products
Pricing Products
Pricing Strategies
Factors Affecting Price
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Pricing Products
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.
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Pricing Products
What Is Price?
There are several terms for
price in the hospitality and
tourism industries.
Airfare
Cruise
package
Rack rate
Toll
Tariff
Section 11.1
price the value placed
on goods or services
being exchanged
Tuition
Tip
Commission
Tax
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Pricing Products
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
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Pricing Products
Pricing Hospitality &
Tourism
A number of techniques are used to assign prices to
hospitality and tourism products.
Section 11.1
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Pricing Hospitality & Tourism
Pricing Techniques
Airlines
Use a class system
Cruise lines
Based on cabin size and location
Hotels
Based on room categories
Car rental
companies
Based on automobile type
Restaurants
Set à la carte or prix fix
Section 11.1
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Pricing Hospitality & Tourism
Pricing Strategies
Promotional pricing
Psychological pricing
Market-penetration pricing
Breakeven pricing
Cost-based pricing
Discounting
Section 11.1
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Pricing Products
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
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Pricing Products
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
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Pricing Products
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
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Pricing Products
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
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Pricing Products
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
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Pricing Products
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
When using cost-plus
pricing, the goal is the
same—to make a profit.
cost-plus pricing
pricing products by
calculating all costs and
expenses and adding
desired profit
Section 11.1
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Pricing Products
Discounting
Discounting is a strategy used to reward consumer
behavior, such as booking early, buying offseason, or buying in volume.
Prices are adjusted by a certain percentage, or
special rates are assigned to specific periods.
Section 11.1
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Pricing Products
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
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Pricing Products
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
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Pricing Products
Name Your Price
According
to aan
study
2003, 75 on
percent
of travelers
who use the
Operating
e-tailinbusiness
an electronic
channel—the
Web—can
be costly,
due
to design,
delivery,
returns,
and
Internet
visit three
or more
Web
sites before
purchasing
their
operating
tickets.
Their expenses.
decisions depend on price, not brand loyalty. Online
travel sites, such as Priceline and Hotwire, take advantage of the
Though Many
larger
dot-com companies crashed in the
price-minded
travel
consumer.
1990’s, small stores like Harris Cyclery of West Newton,
These
name-your-price
travelincrease
sites allow
theusing
user to
request
a
Massachusetts,
actually
sales
a basic
Web
certain
foraathird
ticket,
details, rides
and then
site. price
Today,
of provide
Harris’scredit-card
bicycle business
in on
purchase
thetoticket.
Online travel
services
are reaching
millions of
the Web
get hard-to-find
parts
and personal
service.
users. However, there are drawbacks for some consumers, such
home page to
your
class after
as Describe
no refundsanfore-business’s
tickets and inconvenient
flight
times.
viewing one through marketingseries.glencoe.com.
For more information, go to marketingseries.glencoe.com.
Section 11.1
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Pricing Products
11.1
1.
What is cost-plus pricing?
2.
How do hospitality and tourism businesses
use discounting?
3.
Describe the concept of yield management.
Section 11.1
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Pricing Products
External and Internal
Factors
External and internal factors can affect
product-pricing decisions.
Section 11.2
External
Internal
• Market-demand issues
• Competition
• Economy
• Environmental conditions
• Company’s marketing
objectives
• Marketing mix
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Pricing Products
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
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Pricing Products
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
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Pricing Products
External and Internal
Factors
To be competitive, a business must price its
products lower than its competitors’ products to
draw customers.
Section 11.2
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Pricing Products
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
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Pricing Products
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
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Pricing Products
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
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Pricing Products
Internal Factors
Pricing decisions are made by senior
management staff, the marketing or sales
department, or by company policy.
Factors such as the company’s marketing
objectives and marketing mix must be considered
for pricing to be effective.
Section 11.2
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Pricing Products
The Product Life Cycle
and Pricing
The stages of a product’s life cycle are:
Maturity
Growth
Decline
Introduction
Section 11.2
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The Product Life Cycle and Pricing
Prices remain the same
or may be lowered to
attract customers.
Maturity
Decline
Growth
Introduction
Prices are high
to cover the
costs of
production.
Section 11.2
Prices may have
to be lowered to
keep customers.
Promotional
efforts may
increase.
A company that
continues to
market a
declining product
will lose money.
Product must be
kept or dropped.
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Pricing Products
Prices Subject to Change
Customers want the best value for their money,
and businesses want to sell as much product as
possible.
When a product’s price is set, it should be
reviewed regularly to determine if adjustments
are necessary.
Section 11.2
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Pricing Products
11.2
1. What is meant by elasticity of demand?
2. What are some of the internal and external
factors affecting price?
3. What is the effect of the growth stage on
price?
Section 11.2
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Pricing Products
Checking Concepts
1. Define the term price.
2. Identify who decides if
exchanging money for a
product is worth the
benefit.
3. List the typical pricing
strategies.
continued
1. The
2.
3.
Pricing
Price
consumer
is strategies
the value
placed on
decides
include
promotional
if goods or
services being
exchanging
pricing,
money
exchanged.
is
psychological
worth the benefit
or valuemarketpricing,
of a good
or service. pricing,
penetration
breakeven pricing,
cost-based pricing,
discounting, and
other special
pricing strategies.
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Pricing Products
Checking Concepts
4. Give two examples of
discounting in hospitality
and tourism.
5. Explain consumer
demand.
6. Describe how the
economy may affect
prices.
continued
4. Economic
5.
6.
Discountsconditions
Demand
isare
the
affect
prices
in
many
offered
amount
in
orthe
quantity
ways: During periods of
hospitality
of
goods and
and
recession, consumer
tourism
services
that
spending industries
decreases
for booking
consumers
are
early,
and
businesses
may
have
to lower
prices
buying
willing
to
off-season,
buy
at to
keep
customers.
and buying
various
prices.
in
Inflation, rising interest
volume.
Examples
rates, and other
will
vary. conditions
economic
influence pricing.
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Pricing Products
Checking Concepts
7. Explain how prices are
affected during a
product’s decline.
Critical Thinking
8. Discuss adjusting
prices according to
environmental
conditions.
weather
and other
7. Bad
8.
During
the decline
adverse
stage ofenvironmental
a product,
conditions can
prices
may be
negatively affect a
lowered
to keep
travel/tourism
customerspricing.
buying
company’s
To
provide
incentives for
the product.
customers to travel,
travel-related
businesses may offer
value-added packages
or lower prices.
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