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Marketing for Hospitality and Tourism

Kotler, Bowen and Makens

Pricing Products: Pricing Considerations,


Approaches, and Strategy
Chapter 11

Learning Objectives
1. Outline the internal factors affecting pricing decisions,
especially marketing objectives, marketing mix
strategy, costs, and organizational considerations.
2. Identify and define the external factors affecting
pricing decisions, including the effects of the market
and demand, competition, and other environmental
elements.
3. Contrast the differences in general pricing
approaches, and be able to distinguish among costplus, target profit pricing, value-based pricing, and
going rate.

Marketing for Hospitality and Tourism, 6e


Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


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Learning Objectives (cont.)


4. Identify the new product pricing strategies of marketskimming pricing and market-penetration pricing.
5. Understand how to apply pricing strategies for existing
products, such as price bundling and price
adjustment strategies.
6. Understand and be able to implement a revenue
management system.
7. 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.
Marketing for Hospitality and Tourism, 6e
Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


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Price
Simply defined:
Price is the amount of money charged for a
product or service
Broadly defined:
Price is the sum of values consumers
exchange for the benefits of having or using
the product or service

Marketing for Hospitality and Tourism, 6e


Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


Upper Saddle River, New Jersey 07458 All Rights Reserved

Common Pricing Mistakes

Is Too CostOriented
Does Not
Account for
the Marketing
Mix

Mistakes
Include
Pricing That:

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Fails to
Reflect
Market
Changes

Is Not Varied
Enough

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Factors to Consider When Setting


Prices

Internal
Factors

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Factors
that
Affect
Pricing
Decisions

External
Factors

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C rg
onM an
O siadrk iza
bj e e t i
ec ratin on
tiv tiog al
es ns

Internal Factors

Internal Factors

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2014 by Pearson Higher Education, Inc


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Marketing Objectives
Survival
Survival

ProductQuality
Quality
Leadership
Leadership

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Current
Profit
Maximization
Maximization

Market-Share
Leadership
Leadership

Other
Other
Objectives
Objectives

2014 by Pearson Higher Education, Inc


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External Factors
The Nature of
Market & Demand

Consumer
Competition
Perceptions
of Price &
Value

Marketing for Hospitality and Tourism, 6e


Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


Upper Saddle River, New Jersey 07458 All Rights Reserved

Price-Demand Relationship

Marketing for Hospitality and Tourism, 6e


Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


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Determinants of Price Elasticity

The Product
is Unique

Buyers are
Less Price
Sensitive
When:

The Product is
High in
Quality,
Prestige or
Exclusiveness

Substitute
Products are
Hard to Find

Marketing for Hospitality and Tourism, 6e


Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


Upper Saddle River, New Jersey 07458 All Rights Reserved

Factors Affecting Price Sensitivity


Unique
Value Effect

End-Benefit
Effect

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Substitute
Awareness
Effect

Total
Expenditure
Effect

Business
Expenditure
Effect

Price
Quality
Effect

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Approaches to Pricing

Cost-Base
Pricing

ValueBased
Pricing

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BreakEven
Pricing

CompetitionBased Pricing

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New Product Pricing Strategies


Prestige
Pricing

MarketPenetration
Pricing

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MarketSkimming
Pricing

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Existing Product Pricing Strategies

ProductBundle
Pricing

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Existing
Product
Pricing
Strategies

PriceAdjustment
Strategies

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Price-Adjustment Strategies

Discount
Discount
Pricing
Pricing and
and
Allowances
Allowances

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Discriminatory
Discriminatory
Pricing
Pricing

Revenue
Revenue
Management
Management

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Psychological Pricing

Promotional
Pricing

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Psychologic
al Pricing

Value
Pricing

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Price Changes
Initiating
Price
Changes

Price Cuts

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Price
Increases

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Key Terms
Cost-plus pricing Adding a

Price The amount of money charged

standard markup to the cost of the


product.

for a product or ser-vice, or the sum of


the values that consumers exchange
for the benefits of having or using the
product or service.

Cross-selling The companys other


products that are sold to the guest.
Discriminatory pricing Refers to
segmentation of the market and pricing
differences based on price elasticity
characteristics of the segments.
Fixed costs Costs that do not vary
with production or sales level.
Going-rate pricing Setting price
based largely on following competitors
prices rather than on company costs or
demand.

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Revenue management Forecasting


demand to optimize profit. Demand is
managed by adjusting price. Fences
are often built to keep all customers
from taking advantage of lower prices.
For example, typical fences include
making a reservation at least two
weeks in advance or staying over a
Saturday night.

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Key Terms (cont.)


Survival A technique used when a

Value-based pricing Uses the

companys or business units sales


slump, creating a loss that threatens its
existence. Because the capacity of a
hotel or restaurant is fixed, survival
often involves cutting prices to increase
demand and cash flow. This can disrupt
the market until the firm goes out of
business or the economy improves.

buyers perceptions of value, not the


sellers cost, as the key to pricing.

Upselling Training sales and


reservation employees to offer
continuously a higher-priced product
that will better meet the customers
needs, rather than settling for the
lowest price.

Marketing for Hospitality and Tourism, 6e


Kotler, Bowen and Makens

2014 by Pearson Higher Education, Inc


Upper Saddle River, New Jersey 07458 All Rights Reserved

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