Note:

Most questions cannot be adequately addressed by

mathematics alone. These types of questions should
be considered to establish an appropriate price, and
must completely understand the concept of price.
 Customer: the final user of the finished goods or
a business that acquires finalized product
components.
Seeks to meet a need or set of necessities by
purchasing a specific item or group of goods.
The buyer's Uses numerous factors, including the amount of
money they are keen to spend to meet their
perspective of price
needs.
Aids in defining value (the most fundamental
foundation for developing a competitive
advantage).
Price: a critical component of the seller's value
proposition.
 The buyer's
perspective of price

The sum of the perceived benefit minus the price

paid (Value).
The consumer rationality: make decisions
concerning purchases based on the notion that
the action will benefit them personally.
 Price is crucial to marketers because it indicates
their appraisal of what value buyers perceive in
the product or service.
Factors:
The seller's 1. Foreign Competition
perspective of price 2. Gaining market share through reduced prices
3. New products become more widely available
than in the past.
4. Technological involvement in existing items leads
to shortened market cycles.
- Two-tiered pricing: a pricing system in which the
buyer needs to pay a fee in order to make more
purchases.
Other perspective of price

Price from a Societal Perspective

Price (in dollars and cents): a historical
perspective on value
Each society's monetary system: a more easy
means for purchasing commodities and
generating wealth.
Price is a variable that a society uses to
govern its economic health.
- Can be both inclusive and exclusive
 Other perspective of price
Two Different Ways (Price)
Irrational Man (man's reaction to price:
Rational Man (main assumption; price unforeseen, therefore price manipulation
manipulation outcomes are expected) must be pre-tested)
- As prices fall, customers grow more skeptical and buy
little.
- We have unreasonable behavior.
- For example, the ability to pay a price that few
individuals have the means to pay may be irrational,
conferring great personal status.
- People who purchase on sale or do not purchase on
sale, as well as those who purchase all on sale
- Another irrational phenomenon: people who are unable
to pay
 Other perspective of price

Two-Tiered Pricing vs. Multi –Tiered Pricing

As a result of educated pricing decisions based on
the information at hand, stimulate demand rather
than just manage it.
Also, keep an eye on competitors' lodging costs to
evaluate the competitiveness of your price point,
and respond quickly as necessary.
Value Proposition: Good or service to be recevied and the price to be paid for it.

Example: 1 kg of Broccoli is 120 pesos.

Buyer Assessment of A Seller’s Value Proposition

Buyer Assessment Purchase Decision

1. Perceived Benefit – Price = A value less than 0 Do Not Buy

2. Perceived Benefit – Price = A value equal to 0 Do not buy in most cases

3. Perceived Benefit – Price = A value greater than 0 Buy

The role of supply
and demand in
pricing
·Supply refers to the amount of a good or
service that producers are willing and able to
offer for sale at a given price and time.
·Demand refers to the amount of a good or
service that consumers are willing and able to
buy at a given price and time.
·Equilibrium price is a balance of demand and
supply factors.
· Equilibrium quantity is when there is no
shortage or surplus of a product in the market.
· Shortage is a situation in which the demand
for a product or service exceeds its supply in a
market.
· Surplus the amount of an asset or resource
that exceeds the portion that's actively utilized.
Marshallian Scissors Model
Three Seperate Factors Affecting Buyer:
Desire
Ability to pay
Willingness to pay
 Price must be viewed from the
perspective of the seller and the buyer.
implementing
Price act as signals to buyers and sellers.
strategic pricing
Prices encourage efficient production.
Prices help nations scarce resources.
THE ROLE OF
REVENUE Manager
RM’s must understand well the products their companies create and the
customers they serve.
Effective RM’s can come from several diverse areas within the industry.
No operational area within hospitality has a monopoly on sensitivity to
customer needs.
Effective RM’s may have a background in sales, marketing, finance, or
operations.
Typically, he or she is not the sole decision maker.
 Importance of
strategic pricing
Pricing Pyramid

The key to pricing strategically is not the background of RM’s but

understanding of a firm’s customers and what they value most.
The role of costs in pricing

Cost is any expense that a business incurs

during the manufacturing or production
process for its goods and services.

Price – Cost = Profit

 business cost

A. Fixed and Variable Cost B. Mixed Cost- Semi-variable costs

Fixed Costs in an expense that remain the -Business expenses that have both fixed and
same regardless of the level of production. variable components
-Very high at low production level -Cost that fluctuates according to the
Eg. Rent, depreciation, property tax, insurance,
amount of production and cannot be
salaries
removed from the cost structure like a fixed
Variable Cost is a business costs that expense (Warren and Tyler, 2020)
fluctuate as output changes. -Mixed Cost = Fixed Costs + Variable Costs
- Expenses that change based on how much
a company produces and sells
- Increases as production rises and vice versa
Eg. Ingredients, materials, wages, utility expenses
C. Direct and indirect (overhead costs) D. Controllable and Noncontrollable Cost
Direct cost is a price that can be directly Controllable Cost can be altered
tied to the production of specific goods and based on a business decision or need.
services
-Direct materials, donations, training costs,
- Often variable costs
- Direct labor, direct materials, manufacturing and bonuses.
supplies, wages for production, power Uncontrollable Cost cannot be
consumption, rent (fixed) for production facility altered.
Indirect Cost can’t be directly tied to a -Depreciation, insurance, allocated rent and
specific unit overhead.
- Involved with maintaining and running a
business
- Overhead costs left over after direct costs have
been computed
- Electricity, gas
- Overhead like shipment
E. Other Cost
Joint Cost is a price incurred by a
manufacturer towards producing 2 or more
products or processes
-Products are similar and are usually
interdependent
- Raw materials for multiple products
- Labor and overheads
Incremental Cost is the total cost incurred
by producing each additional unit of
product
- Additional manpower, wages, packaging, raw
materials
Opportunity Cost is the value of
what you forgo to pursue something
- Giving up one thing in favor of another
- Opportunity cost = Cost of alternative
outcome - cost of chosen outcome
Standard Cost is an estimated cost
operating under normal circumstances
pre-determined by the company
- payables like rent, utilities, insurance,
salaries office supplies
- direct materials, direct labor, overhead
Sunk Cost is a retrospective cost, past
cost
- Investment already incurred that can’t be
recovered
- Marketing, research, new software
installation, equipment, salaries and
benefits, facilities expenses
- The better you're able to prepare for a
sunk cost and potentially budget for it, the
better you'll be able to avoid any additional
costs.
The role of value in pricing
Value is the gain or profit of buyers
Seller's Veiw of Sale: Buyer's View of Purchase:
Selling Price – Costs = Organizational Perceived value ( intangible benefit) – Selling
Profit (tangible benefit ) price = Personal profit or gain

The justification of prices based on the buyer’s

view is the satisfaction a purchaser will get from
the purchase.
Seller must match the price with the buyer’s
perception of value for their money.
Seller must understand the buying behavior of
the seller for business’ success.
RMs must help the customers see the benefits
inherent to the products and service being sold.
Must not only focus on selling but on customer’s
buying.
Buyer's Multiple View
1. Value Formula A
Buyers spend own money for themselves
Invest a great deal of time to get a good deal
Satisfaction equals value for hard earned money
Eg. Getting a good deal on travel (airfare,
accommodation, food)
2. Value Formula B
· Buyers spend own money for others
· Child, spouse, relatives, friends, partner
· Seller must meet expectation of the buyers related to
pleasing others
· Recipient of the product must be pleased or satisfied
and not disappointed, whether at low or high price
3. Value Formula C
· Buyers spend other’s money for themselves
· Corporate expense accounts , team building
· As good as it gets
4. Value Formula D
· Buyers spend other’s money for others
· Professional meeting planners, travel agents
· Being in business, it is important that clients
will be satisfied with the product and services
Price Sensitivity
Price sensitivity is the degree to which
the price of a product affects
consumers' purchasing behaviors.
Some people may value quality over
price, making them less susceptible to
price sensitivity. By contrast, people
who are more sensitive to price may be
willing to sacrifice quality.
the relationship between
quality and price
The quality and price relationship is often
one of the first factors brand positioning
consultants will consider when working to
improve the marketability of a product.
For Revenur Managent who are responsible
for strategic pricing, it is important to
recognize that from their customers
perspective, the terms quality and value
are not synonymous.
 Analyzing Quality and Price Relationship

Higher price equals higher quality - customers use the

price of a product as an indication of its quality.
Price expectancy - Customers approach a product with
pre-conceived ideas of how it should be priced.
Prestige pricing - This usually applies to goods
marketed as ‘designer’, ‘luxury’ or ‘high-end’, and is
designed to attract status-conscious customers, who
want to be seen to have spent a lot of money.

“Price does not always equal quality”

the relationship between The cost of your product or service is the
service and price amount you spend to produce it. The
price is your financial reward for
providing the product or service. The
value is what your customer believes the
product or service is worth to them.
Four I’s of Service:
Intangibility
Inconsistency
Inseparability
Inventory
thank you!