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
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