TOURISM & HOSPITALITY MARKETING (WEEK 8 - LESSON 8)

PRICE

It is the amount that the customer pays for a product;

it is the amount of money exchanged for something of value.

It is the sum of values that consumers exchange for the benefit of having or using the product.

SALES

is the total amount that a company gets based on quantity sold multiplied by selling price.

REVENUE

sales minus expenses equals revenue

FIXED COSTS

are cost incurred due to the operations of the business.

PROFIT MARGIN

is the level of income that is desired by the company.

VARIABLE COST

also known as economy of sales; cost that vary based on volume or quantity

BREAK-EVEN POINT

it is the point where in total cost is equal to total revenue

SALES

REVENUE

FIXED COSTS

PROFIT MARGIN

VARIABLE COST

BREAK-EVEN POINT

6 KEY CONCEPTS RELEVANT TO PRICING

COST

the setting prices should incorporate a calculation of how much it costs the organization to produce the product and service

ORGANIZATIONAL AND MARKETING OBJECTIVES

companies go into business for survival.

OTHER MARKETING MIX VARIABLES

price is affected by the interplay of other variables in the marketing mix.

BUYER PERCEPTIONS OF VALUE AND PRICE

Price affects buyer perceptions

COMPETITION

In highly price-sensitive markets, companies try to win customers by setting a lower price than that of the competition.

GOVERNMENT REGULATIONS AND TAXES

government regulation or ordinance that prohibits a company from increasing its prices.

NATURE OF THE MARKET AND DEMAND

pricing needs to address the differences in such markets as well as the differences in the demand of each market segment

PRICING IN DIFFERENT MARKETS

different markets have different levels of price sensitivity

PRICING ELASTICITY OF DEMAND

price increases of decreases normally influence the level of sales of the product

• If demand increases when price decreases, then the product is elastic.

• If demand stays the same even if there is a price cut, then the product is inelastic.

• In tourism industry, as prices fall, demand increases; hence, products are elastic.

• Consumer demand is highly sensitive to price changes.

• Price elasticity may be affected by customers’ perception of product uniqueness, availability of substitutes, and how consumers budget.

OTHER ENVIRONMENTAL FACTORS

may be beyond the company’s control can affect pricing – political instability, calamities, environmental issues.

COST

ORGANIZATIONAL AND MARKETING OBJECTIVES

OTHER MARKETING MIX VARIABLES

BUYER PERCEPTIONS OF VALUE AND PRICE

COMPETITION

GOVERNMENT REGULATIONS AND TAXES

NATURE OF THE MARKET AND DEMAND

PRICING IN DIFFERENT MARKETS

PRICING ELASTICITY OF DEMAND

OTHER ENVIRONMENTAL FACTORS

10 KEY FACTORS AFFECTING PRICE

PRICING STRATEGIES

are ways by which tourism businesses offers products and services at the “right” price.

Prestige Pricing

used when the product or service is positioned to be luxurious and elegant.

Ex. El Nido Resorts – having rates for Villa at 30,500+ per night for a max of three persons

Market Skimming Pricing

employ when the market price insensitive - consumers become insensitive when demand is high and supply low. (Diving)

Market Penetration Pricing

used when setting a low initial selling price to penetrate the market quickly and attract many buyers for a large market share. (Paradise Island Park & Beach Resort vs Pearl Farm Resort)

Product Bundling Pricing

used to attract buyers to purchase because of the reduced rate of the bundle compared to the total cost of the items if purchased individually. (Club Punta Fuego – Batangas – summer promos, mix & match).

Volume Discounts

rates given to frequent or high-volume users to attract them to purchase the products. (buy 10 rooms with free 1 room)

Discounts Based on Time of Purchase

addressed the seasonality aspect of the tourism product. Also known as season discounts, this strategy allows sellers to keep the demand steady. (“piso fare” seat sales)

Discriminatory Price

pricing as the segmentation of the market and pricing differences based on the price elasticity characteristics of the segments. (special local resident rate vs foreigner rate, buffet)

Psychological Pricing

psychology of the consumer. Psychological aspects like prestige, reference prices, round figures, and ignoring end figures are used in pricing. (999.00)

Promotional Pricing

offers discount and short-term incentives especially during the introductory stage of the product or during the special activities such as anniversaries of festivals.

Value Pricing

offering the price below competitors permanently.

Prestige Pricing

Market Skimming Pricing

Market Penetration Pricing

Product Bundling Pricing

Volume Discounts

Discounts Based on Time of Purchase

Discriminatory Price

Psychological Pricing

Promotional Pricing

Value Pricing

10 TYPES OF PRICING STRATEGIES

Revenue Management

It is a systematic approach to matching demand for services with an appropriate supply in order to maximize revenues (Shoemaker et al. 2007)

Revenue Management

is beneficial to the hotel and airline industries in particular because of the following reason:

1. Product is perishable

2. Capacity is fixed daily

3. Demand fluctuates and is uncertain

4. Different Market Segment have different lead times for purchase

5. There is flexibility in pricing hotel rooms and airline seats

Yield Management

It is a form of discriminatory pricing wherein some of the market segments pay higher or lower prices than the other tourist for the same tourism products and services in order to ensure optimal yield from the available inventory. (Shoemaker et al. 2017)

Calculating Yield

A hotel has a fixed number of rooms per day and a variety of market segments with different ranges:

HOTEL NUD has 500 rooms and average rack rate ₱3,000.00.

On January 25, it had an occupancy of 70% and an average room rate of ₱2,500.00

Yield Management

Revenue potential is ₱1,500,000.00 (500 rooms x ₱3000.00).

Rooms occupied is 350 rooms (500 rooms x 0.7).

Revenue realized is ₱875,000.00 (350 rooms x ₱2,500.00).

Yield is computed by dividing the revenue realized over projected income

= ₱875,000/ ₱1,500,000

= 58.33%

Market Recovery Through Price

Some destinations that have lost market share through different external and internal reasons may recover from their loss through price combined with effective promotions.

Market Recovery Through Price

Price can represent a significant incentive to encourage visitors to offset their fears and to return (Hus et al. 2008)