Chapter 12 Pricing Products Pricing Considerations Approaches and

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Chapter 12 Pricing Products: Pricing Considerations, Approaches, and Strategy © 2006 Pearson Education, Inc.

Chapter 12 Pricing Products: Pricing Considerations, Approaches, and Strategy © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and Makens

“The real issue is value, not price. ” -Robert T. Lindgren © 2006 Pearson

“The real issue is value, not price. ” -Robert T. Lindgren © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Chapter Objectives • Outline the internal factors affecting pricing decisions, especially marketing objective, marketing-mix

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, 4 th edition Kotler, Bowen, and. Makens

Chapter Objectives • Contrast the differences in general pricing approaches, and be able to

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 for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Chapter Objectives • Understanding how to apply pricing strategies for existing products, such as

Chapter Objectives • Understanding how to apply pricing strategies for existing products, such as price bundling and price adjustment strategies • Discuss the key issues related to price changes, including initiating price cuts and price increases, buyer and competitor reactions to price changes, and responding to price changes © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Price • Price is the amount of money charged for a good or service

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, 4 th edition Kotler, Bowen, and. Makens

Factors to Consider when Setting Prices © 2006 Pearson Education, Inc. Upper Saddle River,

Factors to Consider when Setting Prices © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Internal Factors • Marketing Objectives – Survival – Current Profit Maximization – Market-Share Leadership

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, 4 th edition Kotler, Bowen, and. Makens

Internal Factors • Marketing Mix Strategy • Costs – Fixed vs. Variable Costs •

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, 4 th edition Kotler, Bowen, and. Makens

External Factors Affecting Pricing Decisions • Market and Demand • Cross Selling and Upselling

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, 4 th edition Kotler, Bowen, and. Makens

External Factors Affecting Pricing Decisions • Analyzing the Price – Demand Relationship • Price

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, 4 th edition Kotler, Bowen, and. Makens

Price Elasticity of Demand © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458

Price Elasticity of Demand © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Factors Affecting Price Sensitivity • Unique Value Effect • Substitute Awareness Effect • Business

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, 4 th edition Kotler, Bowen, and. Makens

Factors Affecting Price Sensitivity • • End-Benefit Effect Total Expenditure Effect Sunk Investment Effect

Factors Affecting Price Sensitivity • • End-Benefit Effect Total Expenditure Effect Sunk Investment Effect Price Quality Effect © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

General Pricing Approaches • Cost-Based Pricing • Break-Even Analysis and Target Profit Pricing •

General Pricing Approaches • Cost-Based Pricing • Break-Even Analysis and Target Profit Pricing • Value-Based Pricing • Competition-Based Pricing © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Cost Based Pricing Product Cost Price Value Customers © 2006 Pearson Education, Inc. Upper

Cost Based Pricing Product Cost Price Value Customers © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Break-even • • BE= Fixed Costs/Contribution (SP-VC) Example - Meal - SP = $20,

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, 4 th edition Kotler, Bowen, and. Makens

Break-even Analysis or Target Profit Pricing © 2006 Pearson Education, Inc. Upper Saddle River,

Break-even Analysis or Target Profit Pricing © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Value-based Pricing Customer Value Price Cost Product © 2006 Pearson Education, Inc. Upper Saddle

Value-based Pricing Customer Value Price Cost Product © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Competition-Based Pricing Product Cost Price Value Customer © 2006 Pearson Education, Inc. Upper Saddle

Competition-Based Pricing Product Cost Price Value Customer © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Pricing Strategies • New-Product Pricing Strategies • Existing-Product Pricing Strategies • Psychological Pricing •

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, 4 th edition Kotler, Bowen, and. Makens

New-Product Pricing Strategies • Prestige Pricing • Market-Skimming Pricing • Market-Penetration Pricing © 2006

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, 4 th edition Kotler, Bowen, and. Makens

Setting Initial Product Prices Market Skimming > Setting a high price for a new

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, 4 th edition Kotler, Bowen, and. Makens

Existing-Product Pricing Strategies • Product-Bundle Pricing • Price-Adjustment Strategies – – Volume Discounts Based

Existing-Product Pricing Strategies • Product-Bundle Pricing • Price-Adjustment Strategies – – Volume 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, 4 th edition Kotler, Bowen, and. Makens

Product-Bundling Pricing • Transfer surplus reservation price (the maximum price a customer will pay

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 $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, 4 th edition Kotler, Bowen, and. Makens

Psychological Pricing • Price-quality relationship • Reference prices • Rounding • Length of the

Psychological Pricing • Price-quality relationship • Reference prices • Rounding • Length of the field © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Promotional Pricing • Temporary pricing of products below list price and sometimes below cost

Promotional Pricing • Temporary pricing of products below list price and sometimes below cost – Value Pricing – Price Sensitivity Measurement © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Price Sensitivity Measurement • Price Sensitivity Measurement (PSM) helps to establish a balance of

Price Sensitivity Measurement • Price Sensitivity Measurement (PSM) helps to establish a balance of price with product or service value based on consumer’s perceptions of that value. – The product or service to be cheap? – The product or service to be expensive? – The product or service to be too expensive, so expensive that you will not consider buying it? – The product or service to be too cheap, so cheap that you would question the quality? © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Other Pricing Considerations • Price Spread Effect – “The highest price menu item should

Other Pricing Considerations • Price Spread Effect – “The highest price menu item should not be more the 2. 5 times the price of the lowest” • Price Points © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Initiating Price Cuts • Excess capacity • Dominate market • Increase market share ©

Initiating Price Cuts • Excess capacity • Dominate market • Increase market share © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Initiating Price Increases • Increase profits • Cost inflation • Excess demand © 2006

Initiating Price Increases • Increase profits • Cost inflation • Excess demand © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Reactions to Prices Changes • Buyer’s reaction • Competitor’s reaction • Trade Ally’s reaction

Reactions to Prices Changes • Buyer’s reaction • Competitor’s reaction • Trade Ally’s reaction © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Responding to Price Changes • Why did competitor change price? – To gain market

Responding to Price Changes • Why did competitor change price? – To gain market share? Use excess capacity? • Where is my product in its life cycle? • What is its importance in the company’s product mix? © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Best Practices • Boston Market • Royal Caribbean Cruises revenue management department • La

Best Practices • Boston Market • Royal Caribbean Cruises revenue management department • La Colombe D’Or cross-selling strategies © 2006 Pearson Education, Inc. Upper Saddle River, NJ 07458 Marketing for Hospitality and Tourism, 4 th edition Kotler, Bowen, and. Makens

Key Terms • Cost-plus pricing • Cross-selling • Discriminatory pricing • Fixed costs •

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, 4 th edition Kotler, Bowen, and. Makens

Key Terms • • • Price Survival Upselling Value-based pricing Yield management/Revenue management ©

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, 4 th edition Kotler, Bowen, and. Makens