Download Pricing Strategies

Pricing
Products:
Pricing
Considerations,
Approaches,
and Strategy
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
“The real issue is value, not
price.”
-Robert T. Lindgren
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Chapter Objectives
• Contrast the differences in general pricing
approaches, and be able to distinguish
among cost-plus, target profit pricing, valuebased pricing, and going rate
• Identify the new product pricing strategies of
market-skimming pricing and marketpenetration pricing
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing
Marketing
for Hospitality
for Hospitality
and Tourism,
and Tourism,
4th edition
4th edition
Kotler,
Kotler,Bowen,
Bowen,and
andMakens
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Factors to Consider
when Setting Prices
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Internal Factors
• Marketing Mix Strategy
• Costs
– Fixed vs. Variable Costs
• Organizational Considerations
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Price Elasticity of Demand
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Factors Affecting Price
Sensitivity
• Unique Value Effect
• Substitute Awareness Effect
• Business Expenditure Effect
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Cost Based Pricing
Product
Cost
Price
Value
Customers
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Break-even
•
•
•
•
•
•
•
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
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Break-even Analysis or Target Profit
Pricing
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Value-based Pricing
Customer
Value
Price
Cost
Product
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Competition-Based Pricing
Product
Cost
Price
Value
Customer
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Pricing Strategies
• New-Product Pricing Strategies
• Existing-Product Pricing Strategies
• Psychological Pricing
• Promotional Pricing
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
New-Product
Pricing Strategies
• Prestige Pricing
• Market-Skimming Pricing
• Market-Penetration Pricing
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Setting Initial Product Prices
Market Skimming
> 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
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Market Penetration
> 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
Marketing for Hospitality and Tourism, 4th edition
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
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.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Key Terms
• Cost-plus pricing
• Cross-selling
• Discriminatory pricing
• Fixed costs
• Going-rate pricing
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens
Key Terms
•
•
•
•
•
Price
Survival
Upselling
Value-based pricing
Yield management/Revenue
management
©2006 Pearson Education, Inc.
Upper Saddle River, NJ 07458
Marketing for Hospitality and Tourism, 4th edition
Kotler, Bowen, and Makens