©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ Kotler, Bowen, and Makens Pricing Products: Pricing Considerations, Approaches, and Strategy

©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 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 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 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 Kotler, Bowen, and Makens

©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 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 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 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 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 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 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 Kotler, Bowen, and Makens Price Elasticity of Demand

©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 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 Kotler, Bowen, and Makens Product Cost Price Value Customers Cost Based Pricing

©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 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 $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 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 Kotler, Bowen, and Makens Customer Value Price Cost Product Value-based Pricing

©2006 Pearson Education, Inc. Marketing for Hospitality and Tourism, 4th edition Upper Saddle River, NJ 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 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 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 Kotler, Bowen, and Makens Market Skimming Market 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 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 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 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 Kotler, Bowen, and Makens Key Terms Price Survival Upselling Value-based pricing Yield management/Revenue management