Learning Objectives: Chapter 19

Pricing

1. Describe the dual role of pricing.2. Explain pricing’s role as an implicit

promotional element.3. List and describe the unsophisticated and

sophisticated pricing approaches.4. Explain the concept of target pricing.

Learning Objectives: Chapter 19

Pricing

5. Describe break-even analysis and how it is used when making pricing decisions.

6. Explain the multistage approach to pricing and, in the process, list the nine Cs of pricing.

7. Explain the concept of value for money and how this relates to pricing.

The Dual Role of Pricing

Pricing plays a dual role in business:

a. As a direct determinant of profitabilityb. As an implicit promotional-mix element

The Role of Pricing as an Implicit Promotional-Mix Element

Customers tend to "read" a great deal into the prices they see for hospitality and travel services. Pricing communicates implicitly by giving customers a perception of the quality that they will receive from a given price for a service.

Unsophisticated Approaches to Pricing

a. Competitive approachb. Follow-the-leader approachc. Intuitive approachd. Traditional or rule-of-thumb approach

Sophisticated Approaches to Pricing

a. Target pricingb. Price discounting and discriminationc. Promotional pricingd. Cost-plus pricinge. New-product pricingf. Price liningg. Psychological and odd pricingh. Leader pricingi. Multistage approach

Target Pricing

Target pricing is where the price is set in terms of a specific return on investment that the company wants to achieve. It is an example of a pricing approach based on a profit-oriented objective.

Break-Even Analysis

Break-even analysis involves developing charts that show the relationship of costs, customer demand volumes, and profits. Costs are separated into fixed and variable in order to do break-even analysis.

Break-Even Analysis

Break-even analysis is used in pricing to determine the level of profitability from an assumed selling price, when the total fixed costs and variable cost per unit are known.

The break-even point is determined, that is where the selling price and demand volume produce revenues that exactly equal fixed and variable costs.

Multistage Approach to Pricing

The multistage approach to pricing begins by considering the company's objectives and specific pricing objectives. Another eight other factors are then evaluated before arriving at the price. Together the factors reviewed are known as the nine Cs of pricing.

Nine Cs of Pricing

1. Customer characteristics2. Corporate objectives3. Corporate image and positioning4. Customer demand volumes5. Costs6. Competition7. Channels8. Complementary facilities and services9. Consistency with marketing-mix elements

and strategy

Value for Money Concept

Value for money is the way that customers compare the amount of money they pay to the quality of the facilities and services that they receive. A single price figure may have different value levels to different customers. That is, value is only relevant in the eyes of the beholder.