© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Chapter Fourteen The Hospitality Pricing Mix

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition The Basis of Pricing  Marketing stems from economics, which responds to the customer  Pricing should be based on: –Research –Economics

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Pricing Practices  Cost-based pricing is obsolete  Using revenue management and customer focus

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition What Is Price?  Customer: the sum sacrifice for the product  Ways to change prices: —Change the quantity of money or goods and services to be paid by the buyer —Change the quantity of goods and services provided by the seller —Change the quality of the goods and services provided by the seller —Change the premiums or discounts to be applied for quantity variations —Change the time and place of transfer of ownership —Change the time and place of payment —Change the acceptable form of payment

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Pricing as One of the Seven Ps  Used by the firm to represent the value of the offering and the value of what the customer receives  Important in marketing –Only part in marketing mix that generates revenue –Used to match supply to demand so financial objectives are met –Can attract attention and increase sales –Establishes market position –Can impact customer loyalty

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Pricing as One of the Seven Ps (cont.)  Price is customer driven  Product-driven pricing  The “drivers of profit” –two main components are sales revenue and costs –sales revenue = sales volume x price –costs include variable and fixed costs  Important because profit is one of the goals of any pricing decision

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Types of Costs  Variable costs –Direct (“out of pocket”) –Semi-variable  Needed regardless of activity  Also increase with activity increase  Fixed costs –Exist regardless of activity

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Cost-Based Pricing  Cost plus pricing  Cost percentage or markup pricing  Break-even pricing  Contribution margin pricing  $1 per thousand pricing

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Value-Based Pricing  Choosing price based on the customer’s perception of value  Not cost-based  Loyalty and perceived value

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Value-Based Pricing (cont.)  The components of value: a way to increase perceptions of price value –Financial value –Temporal value –Functional value –Experiential value –Emotional value –Social value

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Value-Based Pricing (cont.)  Reference pricing: a way to increase the perception of price value

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Psychological Pricing  Prices cause psychological reactions  Pricing lining: price proximity can increase the perception of quality  Odd number pricing  Awareness of how customers perceive value relative to the competition  Velben effects

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Pricing Objectives  Financial objectives –Pricing for profit maximization  Ignores the customer  Ignores the marketing focus  Volume objectives –Market share increases as prices are lowered –Increase occupancy or seat turnover

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Pricing Objectives (cont.)  Customer objectives –Price stability instills confidence –“Inducement to try” –Price penetration –“Enhancing the image” –“Desensitize” the customer to price –Pricing to differentiate the product

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Market Demand Pricing  Demand analysis: –Consideration of all factors that go into a pricing decision –Able to buy –Willing to buy –“What is the market acceptance of price?” –Price elasticity –Revenue management

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Price Customization and Revenue Management  What revenue management is: systematically matching demand for services with supply to maximize revenue  Revenue management practices: –Set most effective pricing structure –Limit reservations based on profit potential –Negotiate discounts with groups –Match market segments with room types and price needs

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition Price Customization and Revenue Management (cont.)  Revenue management practices (cont.): –Reservation agents need to be sales agents –Provide reasons for lower rates –Be consistent with prices across intermediaries –Might utilize “nesting” rules –Revenue management needs a marketing approach

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition International Pricing  More complex internationally –Monetary exchange rates fluctuate –Local competitors’ pricing tactics can throw off rate structures –Different perspectives of price value relationship –Different cultural practices related to price quoting

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition The Last Word on Pricing Common Mistakes in Pricing  Prices are too cost oriented. They are increased to cover increased costs and don't allow for demand intensity and customer psychology.  Price policies are not adapted to changing market conditions. Once established they become "cast in cement."  Prices are set independent of the product mix rather than as an element of positioning strategy. Integration of all elements of the marketing mix is essential.  Prices ignore the customer psychology of experience, perception of value, and the total product. These are the true elements of price perception that will influence the choice process.  Prices are a decision of management, rather than marketing.  In the final analysis, the best price is the one that makes the best overall contribution.

© 2007 Pearson Education, Upper Saddle River, NJ All Rights Reserved. Shoemaker, Lewis, and Yesawich: Marketing Leadership in Hospitality and Tourism, 4 th edition