Pricing in Tourism and Hospitality Industry PDF

TH2013 PRICING IN TOURISM AND HOSPITALITY INDUSTRY Factors Affecting Price Determination (TOPPR, n.d.) Cost of the Product - The most important factor affecting the price of a product is the product cost. The same principle also applies in the case of services. The prod...

TH2013 PRICING IN TOURISM AND HOSPITALITY INDUSTRY Factors Affecting Price Determination (TOPPR, n.d.) Cost of the Product - The most important factor affecting the price of a product is the product cost. The same principle also applies in the case of services. The product cost will be inclusive of the cost of production, the distribution costs, and the selling and promotion costs. This cost will act as a benchmark for setting the price. The Demand for the Product - The cost of the product will only give you a benchmark to determine the price. The upper limit of the price range will depend on the utility the product has and hence its demand in the market. So the cost of the product is the seller’s concern. The buyer’s concern is the utility of the product. The demand for the product will depend on its utility and its price. The law of demand states that the lower the price, the higher the demand. Price of Competitors - One factor that affects price determination is the price of the competition charges for their product. Not only their price but for their products, its features, and other factors like distribution channels, promotions, and the like should also be studied. Government Regulation - The government has a duty to protect its citizens from unfair practices and pricing. It may impose certain laws and regulations with regards to the pricing of a product. It can even regulate the prices of goods that it considers essential goods. Pricing Strategies 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. o For example, El Nido Resorts cater to the Class A market. It is a classic example of a resort that uses prestige pricing with rates for a villa, pegged at 30,500 pesos per night for a maximum of three (3) persons. Market Skimming Pricing – companies employ the market skimming pricing strategy when the market is price insensitive. Consumers become price-insensitive when the 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. o For example, diving in the Philippines is a niche area in tourism, and the rates when it started were presumably very high. Nowadays, since the proliferation of a lot of dive resorts and schools, diving has become more affordable. Market Penetration Pricing – is used when setting a low initial selling price to penetrate the market quickly and to attract many buyers for a large market share. o For example, Paradise Island & Beach Resort in Samal Island, Davao maintains relatively lower rates compared to the more expensive Pearl Farm Resort, which is also on the island. This is a strategy to attract a wider segment of the market. Product Bundling Pricing – 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 individually. 03 Handout 1 *Property of STI  [email protected] Page 1 of 2  TH2013 o For example, Club Punta Fuego in Batangas has summer promos that bundle together different activities for an attractive price. The amount is cheaper than if these activities are availed individually. Volume Discounts – are rates given to frequent or high-volume users to attract them to purchase the products. o For example, some hotels have special rates to attract customers who are likely to purchase a large number of hotel rooms; hence booking 10 rooms to earn one (1) free room has become a popular way to attract volume purchases. There are also accounts which only book in small quantities but over a long period. Such purchases are also given huge discounts. Discounts Based on Time of Purchase – 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 ahead of time. o For example, Cebu Pacific occasionally comes out with ‘piso fare’ seat sales to entice the market to buy air tickets during lean times of the year. Discriminatory Pricing – in this strategy, the company sells a product or service at two (2) 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. o For example, buffet restaurants. They offer the same array of food choices but with different rates for seniors, kids, and adults. Psychological Pricing – is the practice of setting prices slightly lower than a whole number. o For example, hair salons price their haircut 499 instead of 500. This will have the impression that the price is a lot cheaper. Promotional Pricing – offers discounts and short-term incentives especially during the introductory stage of the product or during special activities such as anniversaries or festivals. o For example, a newly opened restaurant may offer a free/complimentary dessert for their first 100 customers. References: Badilla, M.G. (2015). Tourism Marketing. Rex Bookstore, Inc. TOPPR. (n.d.). Pricing. In TOPPR. https://www.toppr.com/guides/business-studies/marketing/pricing/ 03 Handout 1 *Property of STI  [email protected] Page 2 of 2