Sales & Marketing

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Promotional mix

Modern hospitality marketing calls for developing successful products and services that when pricing attractively and made available to selected markets strike a responsive chord with those markets. However, today’s competitive environment also means taking the time in these hospitality companies to continuously communicate with both the present or loyal customers and potential customers.

Pricing types

Hospitality firms use various methods to set prices for their products. Hospitality managers select different pricing approaches based on one or a combination of several factors: a firm’s cost structure, competitors’ prices and customer value perceptions of hospitality products. Cost based pricing usually involves marking up techniques of actual variable costs (product costs) at a certain desired product cost percentage.

Pricing practices in hospitality

Price is one of the four pillars of the marketing mix (4Ps) and price is the only ‘P’ that is directly related to revenue production. According to Cressman (1997), most managers make poor pricing decisions. Managers make bad decisions because they have inadequate or incorrect information about their customers and competitors (Monroe, 2003, p. 3). Traditional thinking and simplified methods of cost plus pricing, room rates of dollars per $1000 construction cost may not be effective in the current competitive markets where consumers neither know nor care for cost information. In the global economy, consumers have an abundance of choices for hospitality services. Consumers prefer and practice competitive shopping from home or office using the Internet as an effective shopping tool for the desired product attributes.

Pricing methods in foodservice

Foodservice operators traditionally choose from among a handful of menu pricing models see also Menu pricing). The first of these is the non structured approach, known also as seat of the pants pricing. More quantitative approaches in general use include the factor method, the prime cost method, the actual cost method, the gross profit method, and the stochastic modeling approach.

Pricing acronyms

REVPAR

REVPAR is an acronym for revenue per available room. The term is frequently used in revenue management regarding hotel operations.

REVPAC

REVPAC is an acronym for revenue per available customer. The term is frequently used in revenue management regarding service operations.

VALUEPAC

Price discrimination

A pricing action may be judged as a case of price discrimination when a seller charges competing buyers different prices for ‘‘commodities’’ of like grade and quality. Discriminatory prices might be direct, or indirect in the form of allowances (e.g., payments for advertising or other services). For differential pricing to be deemed discriminatory and illegal, however, it must substantially lessen competition in commerce or be intended to injure, destroy, or prevent competition among buyers.

Price customization

Robert Crandall, the former chief executive of American Airlines, once said ‘‘If I have 2000 customers on a given route and 400 different prices, I am obviously short 1600 prices.’’ This one sentence captures the essence of revenue management, for it argues that rather than setting prices by segment (e.g., weekend traveler versus midweek traveler, business guest versus leisure guest, etc.), firms should prices by individual customer.