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 profitability
b. 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.
b.
c.
d.
Competitive approach
Follow-the-leader approach
Intuitive approach
Traditional or rule-of-thumb approach
Sophisticated Approaches to Pricing
a.
b.
c.
d.
e.
f.
g.
h.
i.
Target pricing
Price discounting and discrimination
Promotional pricing
Cost-plus pricing
New-product pricing
Price lining
Psychological and odd pricing
Leader pricing
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 characteristics
2. Corporate objectives
3. Corporate image and positioning
4. Customer demand volumes
5. Costs
6. Competition
7. Channels
8. Complementary facilities and services
9. 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.