Module 3

Product & Price Mix

Introduction:

Marketing is about identifying, anticipating, and satisfying customer needs and for that the
marketer should make sure that the products and services continue to meet the customer needs.

In order to make sure that the customers‟ needs are met according to their level of expectations,
the marketer has to follow the following steps:

1. Carry out a simple research by asking customers:

 What they think of each product or services?

 How satisfied are they with the quality?
 How satisfied are they with the support service?
 How effective is the product or service in meeting customer needs?
 How the see their needs change in short term and long term the future?

2. Carry out step number one for each and every product or service offered.
3. Have a system of feedback collection and its analysis for new product development.
4. Find out which stage of the product lifecycle has been reached.
5. Analyze the profitability of each product or service offered.

One of the most important issues in the hospitality and service marketing is understanding what
benefit and satisfaction the customer is seeking for the service. Let us take the case of restaurant
service from the viewpoint of a restaurant manager – the restaurant is providing food but the
customers coming to the restaurant might be seeking an “outing” – an atmosphere – different
from home, relaxation, entertainment, or even status. Therefore, it is very important that the
service product should match both from the customers‟ and the suppliers‟ viewpoint.

Product is the sum-total of physical and psychological satisfactions it provides to the buyer.
Product/service mix is he composite of the products and services offered by a firm. Product mix
is made up of may product or service variables like product line and range (for example a hotel
has various facilities like rooms, restaurants, casinos, coffee shops, banquet halls, etc.), product
design (like the physical appearance, capacity, uses of the product, etc.) packaging, quality
labeling, branding etc.

Basic Hospitality Product:

The basic hospitality product is a combination of goods, services, and environment.

Goods: It refers to the tangible items provided by a hospitality marketer to its customers. Goods
can be items such as beds, food, room, furnishings, AC, and all the physical things that are
available in a hotel. In order to add tangibility to the services, many marketers try to add price as
an element due to the fact that the customer perceives price as a tangible element. These physical
goods are under the direct control of the management.

Services: It comprises all the non-physical and intangible attributes that management can and
should control. Here, employees play a major role with variables like friendliness, speed,
attitude, professionalism, responsiveness, and so on. Though the management can and should
control, everything depends on the systems that are set up by the management.

Environment: It is an element of product which may or may not be physical or tangible in

nature and consists of those items where the management has some control, but not direct or
easy. These are the feelings that the customer is looking for in a product. For example, an
electronic lock in a bedroom door is physical and tangible, but what is getting marketed here is
the feeling of security for the customer. Environment comprises calm atmosphere, comfort,
ambience, architecture, color, etc. The environment created should look like a deliberate attempt
by the service provider to make the customer delightful.

Hospitality products are the physical properties owned by the investor. The physical properties
have sub-products like guestrooms, food and beverages. They are different from traditional
products in the following manner:-

(i) They (e.g. guest rooms are immovable) and therefore, cannot be taken home,
(ii) They cannot be possessed. Rooms are leased for a period while food and beverages
are consumed on site.
 (iii) They cannot be brought to the consumer. The customer has to come to them.
(iv) The same sub-products can be priced separately in short periods. A guestroom, for
example, has varying prices depending on the demand and supply on a daily, weekly,
monthly basis, or seasonal basis.
(v) The sub-products can be priced separately for different segments e.g. corporate rate,
group rate, FIT rate, etc.
(vi) The sub-products are heavily dependent on service delivery. A housekeeper has to
prepare a room for sale; a cook has to prepare meal; and a waitress has to sever the
food.
(vii) Hospitality products and services are promoted on the basis of image and reputation.
(viii) People who provide the service give the cutting edge to the quality of service of the
property.

Types of Hotels

If we look at the hotel property as a product then all hospitality marketers must be thoroughly
familiar with the types of hotel they promote and the clientele they serve. Well, with the
evolution of hotel and its proliferation around the world it is impossible to categorise them under
one term.

Here is a list of hotels usually used in the hospitality and tourism circuit, each with a specific
purpose and clientele.

* Airport Hotel * Bed and Breakfast

* Boutique Hotel * Budget Hotel
* Business Hotel * Casino Hotel
* Conference Hotel * Convention Hotel
* Destination Hotel * Deluxe Hotel
* Downtown Hotel * Family Hotel
* Group Hotel * Residential Hotel
* Motel * Resort
* Suite Hotel * Suburban Hotel.
Types of Restaurants:

Hotel Restaurants:-

* Coffee Shop * Speciality Restaurant

* Grill Room or Rotisserie * Dining Rooms
* Discotheque * Night Clubs

Independent Restaurants:-

* Food Bar * Fast Food Restaurants

* Casual Dining * Food Courts

Of the 4 Ps of marketing, the first P – the Product

It is major carrier of consumer value.

Product constitutes the core of the offer made by the organization/firm. For example Car,
Computer, a pair of Jeans, Five star hotel etc.

Different Levels of Product

1. The Generic Product

2. The Branded Product
3. The Differentiated Product
4. The Customized Product
5. The Augmented Product
6. The Potential Product

The Generic Product:

It is the unbranded and undifferentiated commodity. Here, the product does not have an identity
through a name and is not linked to any one maker or owner.

Unbranded hotels, resorts, restaurants or guides….

The Branded Product:

The Differentiated Product:

The differentiated product enjoys distinction from other similar products/brands in the market.

The marketer endows his brand with some special attributes / qualities and claims uniqueness for
his offer.

Example…. Dumpuket, Bukhara Restaurants of ITC etc.

The Customized Product:

A product that is adapted to the requirements of the individual customer is a customized product.

IT and telecom products are good examples.

The Augmented Product:

The augmented product is the result of voluntary improvements brought about by the firm in
order to enhance the value of the product.

The firm goes beyond the expectations of the customers.

It finds out through market research how the value of its product can be enhanced.

Finest example is Google.

The Potential Product:

Potential product refers to “tomorrow” product. ……… carrying all the improvements and
finesse that is possible under the given technological, economic and competitive conditions
prevailing in that category.

Product Positioning:

It is used by a company to distinguish its products from those of its competition in order to give
it a competitive advantage within a market.

A restaurant can be positioned as up-market, causal-formal, or budget.

We take example of Global Hyatt Corporation decided to position their hotels in the luxury
segment only. The corporation introduced such brands as Park Hyatt, its premium brand chain
with personalised services.

Another example could be Oberoi Vilas properties in India which cater to Niche market.

Criteria for positioning:

1. Benefits or needs of the customer

2. Specific features of the products and services
3. Customer usage occasions, whether for celebration, casual dining, social purposes, or
working meals in case of restaurants
4. Customer categories to include demographic factors
5. Positioning in relation to other competitors.

BRAND:

Brand is a name, term, sign, symbol or design, or a combination of them that identifies a
product or service from competition.

Branding of products is of strategic and increasing importance. One of the most important
decisions a marketing manager must make is about branding. It is the process of finding and
fixing the names of identification. It is nothing but naming the product like naming a child.
The value of brands in today‟s environment is phenomenal. Brands have the power of instant
sales; they convey a message of confidence, quality, and reliability to the target market.

Why do hotels, restaurants and tour operator brand their products or services???

1. It gives a product or service an immediate identity.

2. A brand protects a reputation developed over a long period of time.
3. It legally protects the unique features of the product or service from being unscrupulously
copied by others.
4. The brand can attract a higher price because of its uniqueness and reputation.
5. Brand help in attracting a loyal and profitable set of customers. Brand loyalty protects the
customers from competition.
6. Brand names differentiate between different products of the same hotel or restaurant chain.
7. Branded properties can franchise their brand name to independent properties of similar
qualities worldwide.

What are the benefits customer/guest get from Branding………..

1. It assures the customer of a minimum quality of product and service.

2. Brands provide the guest consistent product quality.
3. Brands try to bring in innovation with new features.
4. The service personnel have to provide high standards of service to protect the brand‟s
reputation.
5. Brands lend prestige and status to those who use them.

Product Life-Cycle:

After launching a new product, management wants the product to enjoy a long and
lucrative life……….
BUT……..

Every product has a life cycle In other word PLC is market by five distinct stages:
The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is
planted (introduction), it begins to sprout (growth); it shoots out leaves and puts down roots as it
becomes an adult (maturity); after a long period as an adult, the plant begins to shrink and die out
(decline). The below pictures shows the various stages of the Product Life Cycle.

The hospitality product requires regular assessment and re-assessment. Product life cycle
analysis concerned with what happens to hospitality products over time, from initial formulation
of life in the market place.

PLC stages….

1. Product development: It begins when the company finds and develops a new product
idea. During product development, sales are zero and the company‟s investment costs add
up.
2. Introduction: It is a period of slow sales growth as the product is being introduced into
the market. Profits are non-existent at this stage because of the heavy expenses of
product introduction.
3. Growth: It is a period of rapid market acceptance and increasing profits.
 4. Maturity: It is a period of slowdown in sales growth because the product has achieved
acceptance by most of its potential buyers. Although sales are still high, profits level off
or decline because of increased marketing outlays to defend the product against
competition.
5. Decline: Is the period when sales off quickly and profits drop.
6. Rejuvenation: It is the phase where marketer re-packages, redesign, add more creativity,
values and re-launch the product or services.

Characteristics of Product Life Cycle

Product Life Cycle

Stages of PLC Characteristics
Sales Profits Customers Costs Competitors
Introduction Low Negative Innovators High Cost per Few
customer
Growth Rapid Rising Early adopters Average cost per Growing
Rising customer number
Maturity Peak High Middle majority Low cost per Stable number
customer
Decline Declining Declining Laggards Low Cost per Declining
customer number
Stages of PLC Marketing Strategies
Product Price Distribution Advertising Sales
Promotion
Introduction Offers a Use cost plus Build selective Build product Use heavy
basic distribution awareness among sales
product early adopters & promotion to
dealers entice trial
Growth Offer Price to Build intensive Build awareness Reduce to take
product penetrate distribution and interest in the advantage of
extensions. market mass market heavy customer
Service demand
warranty
Maturity Diversify Price to Build more Stress brand Increase to
brands and match or intensive difference & encourage
models beat distribution benefits brand
competitors switching
Decline Phase out Cut price Go selective; Reduce to level Reduce to
weak items phase out needed to retain minimum level.
unprofitable hard-core loyal
outlets. customers
Stages of PLC Marketing Objective
Introduction Create product awareness and trial
Growth Maximise market share
Maturity Maximise market share while defending market share
Decline Reduce expenditure and milk the brand
Implications of Product Life Cycle Concept:

1. Though most of the literature on product life cycle states that each and every
product/service follows through this four phase life cycle, not all product introduction in
the market essentially follow through all these four stages. It is quite possible that a
product/service might cross the first stage at the most and the second and die a premature
death.
2. One cannot have a definite line of demarcation between one and the subsequent stage.
The succession is one of merging and not of finite calculation.
3. No two products has identical life cycle. The length of each stage varies from product to
product or service to service depending on its nature, the marketing policies adopted,
changes in technology, competition, and the laws of the land.
4. Ata given point of time or moment, the same product/service might reach different stages
in different market segment. In segment one, it might have touched the peak-height of
maturity, in segment tow, it may be in growth stage, and in segment three, it may be
heading towards decline.

NEW PRODUCT / SERVICE DEVELOPMENT PROCESS:

A new product or service is the culmination of a process, a series of steps beginning with
generation of ideas and ending in commercialisation.

Concept
Marketing strategy
Idea Generation Idea Screening development and
development
Testing

Product
Commercialization Market Testing Business Analysis
development

1. Idea Generation:

Product or service idea generation means fusion of perceived need with the recognition of a
technical opportunity. The perceived need may be new or old, latent or apparent. However, a
product service idea generates only when a technical opportunity is recognised to satisfy the
need. Idea generation involves using various ideas sources and idea generation techniques. Idea
generation is the systematic search for new product or services through internal or external
sources:

The internal sources are:

 Basic research Front Line personnel

 Manufacturing The suggestion box
 Sales people New developments arising from existing services
 Top management

The external sources are:

 Secondary sources of information Resellers

 Competition Foreign market
 Customers Inventors

The methods to generate new product or service idea are:

 Focus groups Problem inventory analysis

 Attribute listing Experts in the field
 Forced relationships Market demand analysis
 Brain storming Gap analysis
 Reverse-brain storming.

2. Idea Screening:

From this stage onwards, there will be every effort to weed out irrelevant and unsuccessful ideas.
The ideas are trimmed. Screening is the critical part of the development activity. New product or
service screening is the development and systematic use of criteria to evaluate the potential of
new product or service ideas. It is an evaluation that relies heavily on managerial judgment and
experience.

The basic reasons for cutting the ideas are:

 All good ideas are not equally promising

 Resources constraints
 Product development is continuous process

The screening is done with the help of two reliable methods such as Check-list method and Idea
rating method.
The executives are to avoid the errors in screening known as “drop” and “go” errors.

Many companies have systems for rating and screening ideas which estimate:

 Market size Rate of Return

 Product Price Then, the idea is evaluated against a set of general
 Development Time and Costs company criteria.
 Unit Costs

In order to ensure the consistency of the ideas with the organisation‟s existing strategy, the image
of the organisation and its capability, its appeal to particular segment, and its cost and
profitability, we have to screen the ideas using different criteria.

3. Concept Development:

 Develop new product ideas into alternative detailed product concepts

 Concept Testing – Test the new product concepts with groups of target customers
 Choose the one that has the strongest appeal to target customers

This is done through market research, when ideas have survived after the screening process. In
this process, the idea or concept is presented to the target market and their reactions are studied
to make necessary modifications to the product/service before it is launched. Testing a service
concept involved producing brochures and literature (physical evidence) to illustrate the idea.

4. Marketing Strategy:

In developing a new product, the marketer can adopt three types of marketing strategy such as:

Overall Strategy – This strategy is concerned with deciding about the Target Market, Product
Positioning, Sales and Profit Goals, Market Share, etc.

Short-term Strategy – Here we decide about the Product‟s Price, Distribution, and Marketing
Budget.

Long-term Strategy – In the long run the firm has to make strategies regarding Sales and Profit
Goals, Marketing Mix Strategies, etc.
 5. Business Analysis:

It is the in-depth study of the estimated economic feasibility of new product or service ideas. It is
an attempt to predict the economic consequences of the product or service for the company as a
whole. It is assessing the profitability of the new product idea that helps management in deciding
whether to introduce the new product, continue the development and the evaluation further, or to
drop the idea. This stage translates the idea into a business proposal by defining the market size
and structure, consumer trends in the market, levels of demand current and future external
environment factors likely to affect performance, competition, market share forecasts, financial
forecast, costing, break even analysis etc.

6. Product/Service Development:

This stage marks the making of proto-type of the product, its testing, refining and then the
marketing campaign is planned. Business analysis reviews the product sales, costs, and profits
projections to see if they meet company objectives. If not, product concept is eliminated. It yes,
move to product development.

At this stage, we have to set up the plant and machinery and production facilities but the service
providers have to undertake the work of designing and supplying literature and supporting
materials. This is the translation of idea into an actual service.

7. Test Marketing:

Test marketing is the ultimate test to experience and experiment with the actual selling and
purchase of the product or service. Test Marketing is the stage where the product the marketing
program is introduced into more realistic market settings. Before the product is launched in the
final market, using an artificial panel of consumers we have to test the product or service at their
residence or testing in the actual market but in a small area.

8. Commercialisation (Launch):

Commercialisation is the last stage in the new product/service development. Commercialisation

is the introduction of the new Product/Service into the marketplace. Here the marketer tries to
find the answers to the following questions:
* When is the right time to introduce product/service?

* Where to launch a new product/service?

The product/service launch is the final stage and the organisation now make decisions on when
to introduce the new service, where to whim and how to introduce the new service. It is at this
stage that he life cycle commences. It is at this stage major decisions are taken regarding the
timings of the launch, the geographical locations of the launch and specific marketing tactics to
be used in support of that launch.

Successful commercialisation involves two important namely,

 Entire market versus selected segment

 Crash versus roll-out introduction

The first deal with the alternative of either entering first a particular segment and then to the
entire market or entire market at a stretch. The second decisions with full scale
commercialisation or part by part commercialisation much depend on the individual conditions
faced by the company.

Packaging:

Packaging is a process of covering, wrapping of goods into a package. Packaging involves

designing & producing the wrapper for a product.

Packaging is next to grading and branding.

Packaging is essential for offering goods in safe, and secured position to consumer.

According to William J Stanton, “ Packaging may be defined as the general group of activities in
product planning which involves designing and producing the container or wrapper of product.”

Types of Packaging:

Hospitality Industrial Packaging

Designed for consumer convenience & appeal, Industrial packaging is focuses on the handling
marketing consideration & display convenience & protection during transportation
The main emphasis is on marketing The main emphasis is on logistics
Primary Functions:

• Protection: It increases life cycle of a product.

• Preservation: It preserves original colours, Quality, flavour etc.
• Economy: Packaging of a product should be economy
• Convenience: Packaging should be light to handle.
 • Containment: Premeasured, pre-weight and then placed in box.
• Identification: Packaging helps to identify the products easily.
• Labelling: It helps to promote the sale of goods.
• Handling: When package is light in weight it facilitates easy handling of cargo.
• Packaging should be match with the product.

Price:

Price is the exchange value of a product or service, always expressed in terms of money. Price is
equal to the product or service expectations, namely, physical product, service, and other
attributes making it available such as delivery, installation, credit, return privileges, and other
after sale services.

Price is the art of translating the qualitative offerings into quantitative terms. It is the value of a
unit of service, to customers at a point of time.

Pricing is one of the most important elements of the marketing mix, as it is the only mix, which
generates a turnover for the organisation.
Price must support the other Ps of marketing mix because it is difficult and must reflect supply
and demand relationship. Pricing a product too high or too low could mean a loss of sales for the
organization.

Pricing should take into account the following factors:

* Perishability
* Intangibility
* Fixed and variable costs
* Competition
* Company objectives
* Target group and willingness to pay
* Government regulations

Pricing is key in the hospitality industry. Issues such as seasonality and regional variations affect
the price that is charged for what in effect is the same product. In addition, the market place is
heavily competitive and nowadays trading happens on a global basis.

The development of the internet and e-commerce means consumers are much more price
conscious and more able to shop around i.e. they can compare the costs of a break in twenty
different locations, with twenty different suppliers without leaving the comfort of their premises.

Setting the right price and comparing this price with the competitors is crucial, as it will affect
the demand for the product and also the profit that can be made.

Objectives of Pricing:

Like other areas of market planning, pricing of products or services begins with setting pricing
objectives. Pricing objectives are the foundations for price policies and strategies to be framed,
and implemented in due course by the firm.

 Financial Objectives:

(i) Profit Maximization:- It is the age-old objective of pricing. Under given market conditions,
the aim is to earn total profit. It is based on the overall activities of the form, rather than on a
single line, as it means open exploitation and resistance to charges in the marketing environment.
It is also a long-term objective.
(ii) Resource Mobilisation:- The resources mobilising either for self-development or
reinvestment elsewhere is another pricing objective. Prices are deliberately set high in certain
cases, not to make profit but to generate more surpluses for the purpose of reinvestment. This
mostly followed by governmental undertakings (ITDC, IRCTC) which can afford to do so.

(iii) Price and Profit Stabilisation:- Stabilising prices and profits can be a long term objective of
a firm. Fluctuating prices, fluctuating profits bring into play unwanted forces that affect the
hotel‟s economic health and status in the market place. Stabilisation of prices and margins is
more critical in industries where oligopoly prevails. Stable prices help in preventing price wars
against the competitors.

(iv) Cash Flow Management:- Product or service pricing policies are extremely important to the
financial manager. Today large sums of money needed to meet research and development
commitments, and ever increasing advertising bills have made firms financially alert. Thus, the
price policy is framed to retain as much cash as possible, to meet such commitments.

(v) Return on Investment:- Pricing for profit is the most logical objective of pricing. Pricing to
attain pre-determined profits involves the establishment of specific profit goals, either on sales or
assets managed as a percentage. It can be a percentage of sales or “Return on Investment” (ROI)
or “Return on Asset Managed” (ROAM). This objective expects a pre-determine rate of return
on capital employed at the end of each year.

 Patronage Objectives:

# To instil confidence in the minds of the customers by price stability.

# To induce the customers to try for buying the product of service by giving special offers.

# To desensitise the customer, to the price, through package deals.

# To differentiate one product from another or to emphasis on an added service provided.

# Meeting Competition:- Prices can be used as a weapon to meet competition or eliminate it.
Matching or marring the competitors is the simplest strategy in case of those firm‟s ha are more
interested in non-price strategies.
# Maintaining an Image:- Every firm has an identity, from the moment it opens its doors. It is an
identity representing what is has done to convey and convince the public. It is the sum-total of
the impressions that the people have about the firm. It is about its products, services, packaging,
trade-marks, brand names, names of employees, graphics, marketing programme, and so on. The
image of the form is rests on how it handles this weapon of pricing.

 Volume Objectives:

# Price is used as means to maintain the market share of a service.

# To build business by increasing the customer base.

# Increase the turnover by lowering the price.

# To build up new markets for the services.

# To contribute to fixed costs, that is made by any incremental business.

SURVIVAL is the fundamental pricing objective.

Factors influencing the Pricing decisions of Services:

1. Internal Factors:

(a) Organisational Policies:- As price decision is an outcome of production and marketing, the
pricing (takes at the top level and the lower level of an organization.)

(b) Service Differentiation:- In order to differentiate own services from that of the competitor,
the service provider has to price the service differently.

(c) Service Cost:- It is necessary to assure that the price charged for a service covers the fixed,
variable and semi-variable costs incurred in providing that service.

(d) Marketing Mix:- The price of a product or service varies depending upon whether the product
or service idea is new or an established one, the service provider is an agent or a sub-agent, or
the main [provider (distribution channel) and also the various pricing objectives.
2. External Factors:

(a) Demand:- Markets have to be segmented effectively according to

(i) Different group of users – In order to obtain maximum value from each segment of users,
different prices can be charged for offering the same service. Depending on the users‟ demand
for the product or service like heavy user, medium user, or low user the pricing variations are
made.

(ii) Different points of consumption – On the basis of the point of production and consumption,
service organizations charge different prices at different service locations. Depending on the
place where the consumption takes place, the prices are to be varied. For example, Taj Group of
Hotels will not charge the same price for its deluxe rooms in Delhi, Mumbai, Chennai, Kolkata
or Bengaluru.

(iii) Different time of production – Owing to the perishability characteristic of the services, they
are priced discriminatorily, depending upon the time at which they are offered. For example,
hotels in Goa follow a different price package during monsoon season as compared to the peak
season of the year.

(b) Competition:- It plays a significant role in pricing, due to similarity in the services offered
and the satisfaction enjoyed by a customer. Unless the products and services provided by the
hotelier re unique in nature, the marketer cannot price the products and services higher than the
competitor.

(c) Governmental Control:- The policy of government regulations affect the pricing decisions
of various services. For example charges in goods and services tax (GST) imposed the
government, from time to time; affect the pricing decisions of a hotel, restaurant or tourism
business.

Methods and Strategies of Pricing in Hospitality Industry:

1. Cost-Oriented Pricing Strategies:

(a) Cost-plus Pricing:- This method of pricing takes into account all the costs involved in the
production and delivery of hospitality products and services. Under this method of pricing, we
take estimates of both, variable and fixed costs per unit. Then a markup is added to costs, to
determine the price, which is a percentage of either the costs or the sales price. The pricing is
also referred to as full-cost pricing, where costs are fully allocated.

(b) Marginal cost Pricing:- This method is applied as a short-term strategy where a form is able
to respond to the excess capacity utilization. Here we set low prices that cover variable costs and
leave some contribution to fixed costs. When excess capacity exists, the contribution to fixed
costs is a better option.

(c) Rate of Return Pricing:- Under this method of pricing, we estimate a rate of return on
investment, taking into account the variable and fixed costs. Then we make an estimation of the
projected sales to be achieved. The rate of return is multiplied by the amount of capital invested
in a product or service, and the result is divided by estimated sales. This gives a return per unit,
which is added to the costs to determine the price.

2. Market-Oriented Pricing Strategies

(a) Bundle Pricing:- Under this method of pricing, we charge a lower price for a combined
bundle of products, that would be charged more, if each of the items were purchased separately.
Bundle pricing is often used to encourage guests to purchase a total package, which gives them
good value. For example, prices of breakfast buffets encourage guests to order the buffet rather
than purchase juice, coffee, and eggs separately, for about the same price.

(b) Complementary Pricing:- This method of pricing is applied when products are used
together. One product may be priced relatively low to encourage purchase of the other, which
bears a premium price. For example, in may bars and some restaurants, salty snacks are offered
free while thirst-quenching beverages bear premium prices.

(c) Going-rate Pricing:- Under the going rate method of pricing, we set prices on the basis of
the average going-rate of major competitors. This keeps prices in line, by charging what the
competition does.
(d) Loss-leader Pricing:-In this method, we fix low prices initially, sometimes even below the
cost for certain products, to attract guests. The hypothesis is that, one guests are attracted, they
will purchase profitable items.

(e) Market Pricing:- This method of pricing is based on the concept that the marketer will
charge a price as high as the market will bear for hi products and services. Prices may not
reflected costs, and in rare cases may not even cover costs. It is simple the most you can.

(f) Market Segment Pricing:- Under his method of pricing, the marketer charges different
prices to different segments of the market. It is usually done on the basis of discounts from rack
prices, using criteria as volume, position in the channel, buying power, and cost of doing
business for differentiation. This is a kind of differential pricing.

(g) Penetration Pricing:- It is where the organization sets a low price to increase sales and
market share. A relatively low price is set in relation to what customers are paying, and the
average price is charged by major competitors, in order to reach or develop new markets. The
price charged for products and services is set artificially low in order to gain a market share.
Once this is achieved, the price is increased.

(h) Price Leadership:- Under this method of pricing, a leading firm in the industry changes
price levels up or down, and other companies follow. Thus, competitive pricing is essentially
eliminated and prices are stable, since the leader establishes he price for all.

(i) Segmental Pricing:- This is a value based pricing method, where we set different prices for
various market segments, based on the estimates of value that each segment receives.

(j) Skimming Pricing:- The organisation sets an initial high price and then slowly lowers the
price to make the product available to a wider market. The objective is to skim profits off the
market, layer by layer. Charging a relatively high price in relation to what customers are paying
and the average prices of major competitors is “skimming the cream off the top of the market:. It
attempts to reach customers willing to buy at a high price, before marketing to more price-
sensitive customers.
Under this method, the marketer charges a high price because you have a substantial competitive
advantage. However, the advantage is not sustainable. The high price tends to attract new
competitors into the market, and the price inevitably falls due o increased supply.

(k) Stay-out Pricing:- Under his method, the marketer sets such low prices that they discourage
new competitors from entering the market.

(l) Competition Pricing:- Setting a price in comparison with competitor‟s.

(m) Optional Product Pricing:- Companies will attempt to increase the amount customer‟s
spend, once they start to buy. Optional „Extras” increase the overall price of the product or
service. For example, airlines will charge for optional extras such as guaranteeing a window seat
or reserving a row of seats to each other etc.

(n) Captive Product Pricing:- Where products have complements, companies will charge a
premium price when the consumer is captured. For example, a restaurant will charge a low price
and recoup it margin (and more) solely from the sale of its only specialty.

(o) Tailored Pricing:- In this method, the marketer works backward from the established price
to determine what the actual components of their offering will be. Prices that guests will pay are
first determined (based on research, past experience, etc.) and then the products and services to
be offered are tailored to match these prices. Fixed –price dinners at gourmet restaurants, travel
tours, and holiday “gateway” packages are among the offerings geared to certain price points.

(p) Product Line Pricing:- It is pricing different products within the same product range at
different price points. The greater the features and the benefits obtained, the greater the consumer
will pay.
(q) Psychological Pricing:- The seller here will consider the psychology of price and the
positioning of price within the market place. The seller will therefore charge 99 p instead of Rs.
1 o Rs. 199 instead of Rs. 200.

(r) Premium Pricing:- The price set is high to reflect the exclusiveness of the product. An
example of products using this strategy would-be First class airlines services, journey at palace
on Wheels luxury trains, Conrad Cruises, Luxury Vilas for accommodation etc.

(s) Economy Pricing:- This is a no fills low price. The cost of marketing and manufacturing are
kept at a minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

(t) Geographical Pricing:- It is evident where there are variations in price in different parts of
the world. For example, rarity value or shipping costs increase price.

(u) Value Pricing:- This approach is used where external factors such as recessions or increased
competition, force companies to provide “value” products and services to retain sales, e.g. value
meals at McDonald. Etc.

Hotel and Restaurant Pricing:

Generally, hotels follow comparatively high rack rate, high standard prices, subsequently offers
considerable discounts for its customers. Some hotels follow negotiated rates, corporate rates for
business houses and government rates for government gets, which are significantly lower than
the rack rates, based on a guaranteed number of rooms nights during a specific period.

There are some hotels which charge a price what the market will bear, and “skim the cream” off
top of the market, in order to maintain the image of heir hotels. Some hotels choose to fix a high
room rate and keep low prices for food and beverages.

In order to attract customers, many restaurant follow “penetration” pricing policy to gain access
to new markets by offering reduced prices, specials, coupons, etc.
The following are some factors which a customer looks at while willing to pay for a restaurant
product/services:
 The uniqueness of the menu
 The quality of food and service
 The reputation of the chef
 The image, ambience, etc.

Some Pricing Tactics in Hotels:

Pricing policies, strategies and programs are long term in nature, whereas pricing tactics are
initiated o address changing circumstances in a short period, even day to day. The following are
some poplar tactics of pricing:-
 On-going discount programs (senior citizens, club members, Families)
 Holiday promotions
 Special event pricing
 Package promotions (dinner/room packages, travel packages)
 Meeting competitor's prices.

Some Common Errors in Pricing:

Pricing has a significant role to play in the combination of marketing mix. This is due to the fact
that price adds tangibility to the services provided b the hospitality marketer. How much ever
care one takes in fixing an affordable price for the products and services, mistakes are bound to
happen. These mistakes create wrong perceptions about products and services in the minds of the
hospitality customer. The following are some of the common pricing errors made by hospitality
enterprises:

 Basing prices on costs while neglecting marketplace forces

 Increasing prices as cost rise, without considering other marketing factors and
alternatives
 Holding the line on process as market conditions change, rather than adapting prices to
new situations.
 Making pricing decisions piecemeal, rather than an integrated part of the whole
marketing mix.
  Treating pricing as a financial rather than marketing decisions
 Neglecting to relate price to guest's perceptions value
 Using formulae approaches to setting prices
 Basing prices on management intuition and judgement
 Unrealistic assessing of acceptable consumer options regarding alternative offerings
 Over estimating consumer reactions to company offerings.

Some Strategies and Tactics in Hospitality Industry:

 Price Flexibility
 Guest Mix
 Service Mix
 Capacity Management
 Group Bookings
 Discounting
 Upselling
 Period Management

Yield Management:

It was introduced by airlines industry way back in 1970s after realizing that they need to have
strategy for offering an identical flying experience to different customers for different prices,
based solely upon the time at which they booked and the flexibility that they required.

Sofar hotels are concerned, well; they really started this practice of Yield by mid-1990s, in an
attempt to rationalize the wide variety of rates that they were charging different customers.

Revenue per available room (REVPAR) is increasingly used as the definitive measure of a
hotel‟s performance, replacing or complementing the traditional measurements of occupancy and
average rate. And yet, too often, too few people in a hotel fully understand the significance of
this measurement.

Yield management and revenue management is one and the same thing. Essentially they are an
approach to increasing profit, by responding to what we know about the past,, what we know
about the present, and what we will happen in the future.

In other words, we are trying to sell the right room at the right time, and at the right price to
the right person.
 Yield management is a systematic approach to simultaneously optimize both average rate and
occupancy, the ultimate aim being 100% yield i.e. 100% occupancy at rack rate.

Yield is based on the basic economic theory of supply and demand. In times of high demand
high prices can be charged. Conversely when demand is low, prices will be lowered. Also, when
supply is limited, prices rise and when there is an over-supply, prices drop.

Yield management only really operates in hotels and airlines because of the following merits:
 Capacity is relatively fixed.
 Demand is derived from distinct market segments
 Inventory is perishable i.e. an unsold room today cannot be sole twice tomorrow, to make
up from lost revenue.
 Then product is often old well in advance of consumption.
 Demand fluctuates significantly.

Actual Room Revenue

Yield = -----------------------------
Potential Room Revenue
( A strategy for increasing Profits)

The marketer should want to work with yield management because of the following reasons:

 He doesn‟t want to accept low-rate groups at the expense of high –paying individuals.
 He wants to know what rate to quote before the telephone rings
 Booking lead times vary by segment.
 Demand from different market segments fluctuates.
 He needs help in deciding which business to convert or accept and at which rate.

Yield management is about forecasting, discounting, managing inventories, overbooking,

evaluating group enquiries, redirecting demand, and logical and rational pricing.

Essentially, they key to successful yield management is the ability to differentiate customers who
are prepared to pay high prices, from those who are prepared to change their travel plans to
secure low prices, or make a commitment well in advance to secure the low price.

It is all about selling the same room at a different price, depending upon demand and most
critically, all of the staff being able to explain to a guest why they have paid a certain price,
without having to fall back on a “room-type” argument.

For success of the yield management technique, there should be clear direction from senior
management, proper staff training in yield management, regular update of information, weekly
yield meetings, and modification of strategy.
 ROOM and MEAL PLAN

European Plan (EP): Room only basis.

Continental Plan (CP): Room with breakfast.
Modified American Plan (MAP): Room + breakfast + either Lunch or Dinner
American Plan (AP): Room + All meals
Jungle Plan (JP): Room + All meals + a game safari.