Applying Pricing Strategies 2 Ok

8/9/2019 Applying Pricing Strategies 2 Ok

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How does a company /organisation determine the

selling prices of its

products.?


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Definition of Value

Conceptualising

Product + Service + Location + Ambience + Image

Price

Value =

So, it is not always the numerical part of the formulaSo, it is not always the numerical part of the formula

that countsthat counts


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Pricing Objectives

Two types: - Sales-oriented based on the markets

capacity to buy(what the customers can spend, how much can the customer can(what the customers can spend, how much can the customer can

really pay or what value the customer gives for the product /really pay or what value the customer gives for the product /service)service)

Profit-oriented- based on the ownersrequirement of the profits

( how much profit the owner want to make and how would he( how much profit the owner want to make and how would he

make it happen by selling the product / services.)make it happen by selling the product / services.)


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Consider how the prices of hotel rooms are finalised

Sales oriented:Sales oriented:Why are Oberoi Raj vilas rooms very expensive?

To find out the answer, Discuss how much the guest is ready

to pay for the brand, architecture, and extensive services, and

also find out who are these guests ( foreigners). this is thereason why Oberoi Raj Vilas rooms are very expensive.

ProfitProfit--orientedoriented--

Consider how the prices of Mc burgers finalised

To find out the answer, Discuss how many burgers the

company sells in a day and what is the profit margin per

burger

AssignmentAssignment


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D

eterminants of Price

Demand

Price sensitivity

Relevant range

Supply

Goods

Labor Capital

Competition


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Pricing Method Cost-based

Multiplier = 1 z Desired food cost %

Tentative selling price = Food costv

Multiplier


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Pricing Method Cost-based

An Example

Multiplier = 1 z Desired food cost %

Tentative selling price = Food costv

Multiplier

E.g.

Desired food cost % = 40%

Shrimp dinner food cost = Rs.6Multiplier = 1 z 40% = 2.5

Tentative selling price = Rs.6 v 2.5 = Rs.15


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Pricing Method D

emand-based

Skimming

Penetration pricing


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Break-even Analysis

Break-even point (BEP)Total revenue = total costs

( It is the pricing in which the firm tries to determine

the price at which it will break even for example if the fixed cost is Rs. 1000 and the cost per unitof the product is Rs. 10, then the firm must sellthe product at a minimum of Rs. 10 each and sellat least 100 pieces to break even. find out what

would be the selling price if 50 pieces are sold ( Rs. 20 at least) )


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MARKET CONDITIONAPPROACHIn this method of pricing rooms the

management looks at comparable hotels in

the geographical market and sees what they

are charging for the same product. The

rates are then fixed in comparison with

these hotels.


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Selecting the Final Price Price range

Price changes


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Hotel ricing CostCost--basedbased

Hubbart formulaHubbart formula

This approach considers operating costs, desired profits, and expectedThis approach considers operating costs, desired profits, and expectednumber of rooms sold.number of rooms sold.

This approach starts with desired profit, adds income taxes, then addsThis approach starts with desired profit, adds income taxes, then addsfixed charges and management fees, followed by operating overheadfixed charges and management fees, followed by operating overheadexpenses and direct operating expensesexpenses and direct operating expenses

Room rate rangeRoom rate range Room prices are differentiated by the type of the rooms, suite rooms very expensive,Room prices are differentiated by the type of the rooms, suite rooms very expensive,

deluxe roomsdeluxe rooms medium pricedmedium priced

Discounting

prices are determined by different seasons slack and peak

Yield managementYield management

A yield management system is used to maximise a hotels yield or profits.A yield management system is used to maximise a hotels yield or profits.This is done by the rates the hotel will charge and the number of roomsThis is done by the rates the hotel will charge and the number of rooms

available for each rate based or projected occupancies for a givenavailable for each rate based or projected occupancies for a givenperiod. These systems help hotels achieve the maximum contributionperiod. These systems help hotels achieve the maximum contributionmargin based on the demand of the hotel rooms.margin based on the demand of the hotel rooms.

Consider why an airlines charges different rates to different customersConsider why an airlines charges different rates to different customers


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Package Prices

Appeal to specific marketTo promote the product to a specific segment , manipulate the selling

process in accordance to the target client)

Enhance customer satisfactionTo manipulate prices in such a way so that the customers are satisfied

may be lower the rates or raise the rates to increase prestige value.


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-Increase revenueto manipulate the prices in a way so that the desired revenue is

achieved. like a resort hotel ( monopolistic) suddenly hikes the

room prices to increase total revenue.

-Increase demand during off season example-lower the prices of the rooms of a hotel situated in a city during

low business months.


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Case studyCase study -- pricingpricing


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Case studyCase study -- pricingpricing

Documents

Applying Pricing Strategies 2 Ok