Pricing in Tourism and Hospitality PDF

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Book 5 - PRICING IN TOURISM AND HOSPITALITYPrice is the amount that a customer pays for product and services. It is the value placed on something that is measured in monetary terms. Key factors affecting price incude costs, organizational and marketing objectives, other marketing mix variables, buye...

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Book 5 - PRICING IN TOURISM AND HOSPITALITY

Key Concepts Relevant to Pricing

is the amount that a customer pays for product and services. It is the value placed on something that is measured in monetary terms. Key factors affecting price incude costs, organizational and marketing objectives, other marketing mix variables, buyer perceptions of value and price, competition, government regulations and taxes, nature of market and demand, pricing in different markets, price elasticity of demand and other environmental factors. General pricing approaches used in marketing is cost-based pricing, break-even analysis and target profit pricing, buyer-based pricing, and competition-based pricing. Commonly used pricing strategies include prestige, market skimming, market penetration, product bundling, volume discounts, discounts based on time of purchase, dicriminatory pricing, psychological pricing, and promotional pricing. Revenue management is used by tourism establishment to maximize revenues by matching demand and supply. Price can be used as market recovery strategy. Price changes, increase or decrease, should be handled well to address customer perceptions and buyer acceptance.

There are few terms that need to be defined in order to easily understand concepts in pricing. They are as follows:

CHAPTER 1: What is Price? Price is the amount that the customer pays for the products; the amount of money exchanged for something of value. Price makes products available to the target market and reflects the value of the product. It is the sum of values which consumers exchange for the benefit of having or using the product. It goes by several other names such as rent, professional fee, room rates, tuition, fees etc.

- total amount that a company gets based on quantity sold multiplied with selling price. - total income/ profit that the company keeps after all the expenses have been paid for. Simply put: sales minus expense equals revenue. - costs incurred due to the operations of the business and do not fluctuate with volume of sales. s - level of income that is desired by the company. This usually comes out in percentage form as the amount of mark-up placed on top of the fixed and variable cost of a product. ts - costs that vary based on volume or quantity. Bigger quantities of the same order will cost less than smaller quantities of the same specifications. This concept is commonly known as economies of scale. oint - the point wherein total cost is equal total revenue. A company incurs a loss if costs exceeds revenue and generates an income when revenue exceeds costs. It is important to know the break-even point especially for a new product, so that it is clear to management at what volume of sales is the company starting to earn an income.

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Key Factors Affecting Price . The setting of prices should incorporate a calculation of how much it costs the organization to produce the product or the service. Both variable and fixed costs should be included in the price. ng s. Companies get into business for survival, profit maximization, high rate of return of investment, brand equity growth and an adequate share of the market. Some organizations such as foundations and national parks may set low fees mainly because they are not commercial in nature. . Price is affected by the interplay of the other variables in the marketing mix. Higher prices should mean higher quality products and services, elite distribution channels, and more personalized promotions. For products priced in the lower bracket, expectations on product and service quality, distribution channels, and promotional strategies need to be tempered relative to the product's price. . Buyers have different perceptions of product quality and value based on branding and image. Price affects buyer perceptions. The higher the price, the higher the buyer's expectations of quality are. nowing what competition offers is an important factors in the success of a business. In highly price sensitive markets, companies try to win customers by selling a lower price than that of customers. Some government regulations and taxes can either cause a company to maintain its low prices or increase its prices. There may be a government regulation or ordinance that prohibits a company from increasing its prices. However, taxes and other governmental fees may be charged by some local governments and prices should be increased to cover for such additional expenses. . Tourism caters to a highly segmented marketplace. Pricing

needs to address the differences in the nature of such markets as well as the differences in the demand of each market segment. s. Different markets have a different levels of price sensitivity. Hence, a one price fits all markets would not be recommended. . Price increases or decreases normally have an effect on 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, the product is inelastic. In the 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 customer's perception of product uniqueness, availability of substitutes, and how consumers budget. s. Other environmental factors that may be beyond the company’s control can affe g. These factors may include but not limited to political instability, calamities, environmental issues, etc.

Price and Its Relationship to Marketing Objectives Tourism establishments may have different reasons for coming up with a marketing mix strategy. 1 . A company may be experiencing a deep crisis that the most basic reason for its marketing efforts is merely to survive. A crisis may be a recession, an economic crisis, or stiff competition.

n. Some companies seek to use marketing for short term financial gains. Gains such as current profit maximization, improved cash flows and swift return on investment are mostly for short-term financial gains.

3 . Some companies build on marketing strategies that will help company gain a huge market share and become a market leader in its product category. This objective seeks to enjoy low costs because of high volume which will eventually lead to long-term gains.

. This kind of pricing approach is when price is determined using break-even price and projecting a target profit.

h. Establishing a positive brand image leads to high awareness and perception of quality. Some companies want their brands to be associated with high quality. Marketing strategies seek to make some brands known as the best service providers in their category since consumers are willing to pay more for good quality.

CHAPTER 2: General Pricing Approaches Aside from pricing strategies, there are es that will help marketers in determining the " price. g. Cost-based pricing is an approach that aims to cover costs and make a profot. When using cost-based pricing, the fixed and variable costs are computed and a mark-up is added. This kind of pricing strategy, however, does not look into the price sensitivity of its consumers nor the pricing scheme of its competitors.

Photo source: Marketing91 ). Some companies base their prices on the product's value as perceived by the consumers. Perceived-value pricing uses the the buyer's perceptions of value and not the seller's cost as the key to pricing. The question marketer's seek an answer to is, "At what price are buyers willing to buy my product?".

Photo source: Julie Askew - WordPress.com . This approach looks at what price competitors are putting on their products and services. Companies base their mainly against the price pegged by their main competitors. Less attention is paid on costs, margins, and demand.

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CHAPTER 3: Pricing Strategies es are ways by which tourism busineses offer products and services at the "right" price. Some considerations in coming up with the right price include the stage in the product life cycle, market demand, competition, and company objectives. Photo source: Marketing91 For new product pricing, strategies that can be employed include prestige pricing, market skimming, and market penetration pricing.

Prestige pricing is used when the product or service is positioned to be luxurious and elegant. Higher price projects that the product is high-end and prestigious. This strategy seeks to attract a certain type of clientele and project a degree of exclusivity. By its high price, it seeks to position itself as elite and hopes to target the Class A market.

or and demand include product bundling, volume discounts, discounts based on time of purchase, and dicriminatory pricing.

Product bundling is a strategy used to attract buyers to purchase because of the reduced rate of the bundle compared to the total cost of the items if purchased individuall. The sellers using productbundle pricing combine several of their products and offer the bundle at a reduced price.

Companies employ the market skimming pricing strategy when the market is price insensitive. Consumers become price insensitive when demand is high and supply is low. Hence, products and services that have high demand usually set higher prices to achieve higher profit margins. This is an effective short-term policy since competition can easily come in and provide more supply.

Market penetration pricing is used when setting a low initial price to penetrate the market quickly and to attract many buyers for a large market share. Some start-up companies use this strategy since they have lower operating costs than bigger companies. It is an aggresive way of attracting cocsumers to try your product because it is cheaper than the existing products in the market. Howeveer, quality should be at par with competition to ensure repeat sales.

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Volume discounts are rates given to frequent or high volume users to attact them to purchase the products. Some companies have a demand for a product in large quantities through a single purchase or for a continous period of time throughout the year.

6 e- This strategy addresses the seasonality aspect of the tourism product. A price reduction is given to buyers who purchase services out of season when the demand is lower or when purchased way ahead of time. Early bird discounts and off-peak season discounts are examples of this kind of strategy. s the segmentation of the market and pricing differences based on price elasticity characteristics of the segments. In this strategy, the company sells a product or service at two or more prices, although the difference in price is not based on differences in cost but tries to maximize the amount that each customer pays. This addresses the highly price-sensitive market segment. Other pricing strategies, which may influence purchase, include psychological pricing and promotional pricing.

ng - Psychological aspects like prestige references prices, round figures, and ignoring end figures are used in pricing. This strategy plays on the psychology of the consumer. The consumer defines the perceived value of the product.

as anniversaries or festivals. It gives the guests a reason to avail the product and promotes a positive of the property. This kind of pricing, however, may backfire on the product since users might just wait for another promotional offer for them to buy again.

CHAPTER 4: Revenue Management R is a systematic approach to matching demand for services with an appropriate supply in order to maximize revenues. With advancements in technology, revenue management has become more scientific and less gut feel-based. Most hospitality establishments are able to juggle all bookings and rate quotations in a way that maximum revenue potential is achieved at any given night. It plans out the ideal business mix and adjusts rates on an ongoing basis as reservations materialize.

Photo source: B2B Marketing Revenue management is beneficial to the hotel and airline industry in particular because of the following reasons: 1. Product is perishable; thus, it is better to sell the room/ seat at a low price than have it empty. 2. Capacity is fixed daily. In no way can rooms or seats be increased at a specific day to meet demand.

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9 g- offers discounts and shortterm incentives especially during the introductory stage of the product or during special activities such

3. Demand fluctuates and is uncertain depending on days of the week and season of the year. 4. Different market segments have different lead times for purchase. Conventions and conferences have longer preparation time that can span from anywhere between one year to three years, while a

business traveler can book even a week prior to travel. 5. Flexibility in pricing hotel rooms and airline seats. The market accepts that hotel room and airline seat rates may vary depending on purchase lead time and seasonality. is a form of dicriminatory pricing wherein some of the market segments pay higher or lower prices than other tourists for the same tourism products and services in order to ensure optimal yield from the available inventory. It aims to manage revebue by controlling prices and capacity. Yield management addresses the perishability of tourism products and services. It entails a thorough knowledge of the different market segments, demand, and booking patterns as well as price sensitivity of each market segment. It enables organizations to sell possibly vacant rooms at reduced rates during off-peak but also maximizes its revenue during peak periods.

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Some destinations that have loss market share through different external and internal reasons may recover from their loss through price combined with effective promotions. Price can represent a significant incentive to encourage visitors to offset their fears and to return.

Know when to initiate a price cut or a price increase. When does a company change its prices?

Companies normally adopt a strategy that works well with their company. Companies need to be careful to employ price cuts because doing so might lead to a price war where all the market players are affected negatively. One major reason to cut prices is when there is excess capacity or inventory. Despite promotional efforts, product improvements and better distribution systems, a company may resort to lowering its prices in the hope that sales volume will increase. Another reason for cutting price is to gain a higher market share. Amidst stiff competition, companies may choose to reduce its price or come up with a lower market price than competitors with the intention of gaining revenue through increase in volume.

Book 6 - DISTRIBUTION CHANNELS IN THE TOURISM AND HOSPITALITY INDUSTRY AND DIGITAL MARKETING Distribution systems provide adequate framework for making a company's products and services available to the consumer. D ls are a set of independent organizations involved in the process of making a product or service available to the consumer. Functions od distribution channels include information, promotions, contact, matching, negotiation, physical distribution, financing, and risk-taking. Marketing intermediaries are indirect distribution channels that help distribute products and services. Travel agents, tour operators, tour specialists, hotel sales representatives, government tourists associations, consortia, reservation systems, global distribution systems, and concierges are marketing intermediaries. g has grown by leaps and bounds due to the widespread adoption and use of the internet. a is a great way to grow one's business by listening to what the market wants and adjusting one's offer to match what the market needs. Social media content includes blogs, microblogs, photo and video sharing, and loactionbased networking sharing. The rise of mobile phone has helped social networks grow exponentially

because of its easy access. The use of internet has its limitations as well as its advantages. using the world wide web can be made through the use of social media, company websites, travel websites, group buying sites, and online auctions.

CHAPTER 1: Distribution Systems Ad is the " e" aspect of a company's marketing mix. It provides an adequate framework for making a company's products or services available to the consumer. It is a set of different organizations, independent or not, that are involved in the process of making products and services available for use or consumption. Distribution systems are often used to move the customer to the product. A combination of different distribution channels make up the distribution system. It provides a steady flow of products to customers. An effective distribution system makes the difference between a market share leader and a company struggling for survival. It is viewed as the company's circulatory system.

Factors that Increased Its Importance Focus on an effective distribution system has been affected by several factors. These factors have actually led to the increased importance of selecting channel members and coming up with an effective distribution system. These factors include the following: n. There is a growth of both local and international competitors. Tourism products and destinations cannot just wait for people to come, they should be able to invite them to come. n. With globalization and the growth of foreign partnerships, systematic distribution networks need to be developed to enhance competitiveness in the global arena. The growth of technology has given rise to international reservation systems which give consumers better access to travel products and services. he concern on tourism product's perishability may be addressed by easier access to its purchase through the availability of distribution channels.

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source:

Alamy

are a set of independent organizations involved in the process of making a product or service available to the consumer or business user. Distribution channels move goods from producers to consumers or move consumers to where tourism products and services are. It overcomes the major time, place, and possession gaps that separate goods and services from those who would use them.

Distribution Channels and Its Functions A distribution channel is a delivery arrangement used by a supplier, carrier, or destination marketing organizatio channels are those the company uses on its own without the assistance of independent intermediaries. An indirect distribution channel, on the other hand, uses the assistance of independent intermediaries to distribute its products. Distribution channels are exposed to information about what the market needs and

wants. They can gather marketing research and intelligence information about the marketing environment. istribution channels help in developing and spreading persuasive communications about a company's current offer.

and travel companies. More companies are now trying out the advantages that the Internet affords its users. Some of the advantages of using the online platform for distributing travel products and services are:

Distribution channels are the company's link to finding and communicating with prospective and current buyers. istribution channels know what the products can do and what the buyer needs; hence, they can shape and fit the offer to these needs. Distribution channels represent the company to the consumer during negotiation. Hence, they are equipped to settle on pricing and other terms for purchase and acquisition of products and services. Distribution channels handle the physical transport of goods and services to its consumers. pital outlay of distribution channels should cover for the costs involved in the actual distribution of the products. C...