Tourism and Hospitality Marketing (Finals) PDF

Chapter 6: PRICING IN TOURISM AND HOSPITALITY WHAT IS PRICE? Price is the amount that the customer pays for a product; it is the amount of money exchanged for something of value. KEY CONCEPTS RELEVANT TO PRICING Sales - Is the total amount (that a company gets based on quantity sold) X...

Chapter 6: PRICING IN TOURISM AND HOSPITALITY WHAT IS PRICE? Price is the amount that the customer pays for a product; it is the amount of money exchanged for something of value. KEY CONCEPTS RELEVANT TO PRICING Sales - Is the total amount (that a company gets based on quantity sold) X selling price = sales Revenue - Is the total income/profit that the company keeps after all the experience have been paid for simply put: sales expense revenue. Fixed costs - A fixed cost is a business expense that normally doesn’t change with an increase on decrease in the number of goods and services produced or sold by the business Fixed costs are commonly related to recurring expenses not directly related to production such as rent, interest payments, insurance, depreciation, and property tax Property Taxes Maintenance Fees Packaging Costs Commissions Rental Payments Salaries Loans Loan Payment Insurance Transaction Fees Differences between Fixed Costs and Variable Costs Fixed Costs Variable Costs Do they change? Sometimes Often Based on production No Yes Direct or Indirect Generally Indirect Generally Direct Examples Rent, interest, Labor, utilities, raw insurance, materials, shipping, depreciation, property commissions tax Profit Margin - Is the level of income that is desired by the company. This usually comes out in percentage form as the amount of mark-up placed on top of the fixed and variable cost of a product. Variable Costs - Are costs that vary based on volume or quantity. Bigger quantity of the same order will cost less than smaller quantities of the same specifications This concept is commonly known as economies of scale.  Break-even Point - Is the point wherein total cost is equal to total revenue. THINGS TO CONSIDER WHEN SETTING PRICING STRATEGY 1. What value added services do you provide inclusive of the experience? 2. What are your operating costs (fixed and variable)? 3. How unique is your business? 4. What market do you want to attract and what positioning in the market do you want to establish? 5. For most tourism businesses setting prices will be more market based-that is, what do competitors with similar products and services charge within your market? PRICING COMPONENTS Rack Rates All tourism businesses should have a rack rate this is your “full rate before any discounts are applied and typically is what is provided to wholesalers and printed on brochures for the season ahead. Seasonal Pricing Using a mix of pricing throughout the year to cover low, high, and shoulder seasons is a standard way for tourism businesses to cater for differing levels of demand due to the time of year. Last-Minute Pricing A common method for accommodation suppliers to fill those last-minute gaps in inventory availability, last-minute pricing is basically discounting daily prices according to forward bookings and promoted on last-minute booking websites. Common Pricing Types < Per Person pricing < Per Unit < Pricing Single or Double Occupancy