CASE 2: THE

PRICE IS
RIGHT
2016259538 – SITI AISYATUL AWNI BINTI ZAWAWI
2016263068 – SITI NOR RAIHANAH BINTI MUHAMAD NOR
HAFIZ
2016263096 – SITI NURAIN BINTI A. RAHAMAN
2016263078 – NUR SARAH BINTI RAMLI
2016263074 – RAJA NATASHA FARHANA BINTI RAJA BADLI
OVERVIEW OF THE CASE
INTRODUCTION ON SRI SURIA HOTEL

 Have been in operation for almost 10 years and located strategically in Ipoh, the
capital city of Perak
 Ever since its establishment, Sri Suria Hotel became attention for its location in
the centre of the city and have good connectivity with the transportation
network
 Then, Sri Suria Hotel provided hotel accommodation services, dining outlets and
on site management services to its clients
OVERVIEW OF THE CASE
CONFLICT IN SRI SURIA HOTEL

 In 2018, the Board of Director of Sri Suria Hotel raised concern in on site event
management services provided to customers as the profit accumulated for the
service is too small.
 Thus, the Cost Controller was asked to proposed effective price strategy for the
on-site management service to the Board of Directors
 The cost controller decided to focus on costing for two events of Manjong
Community Anniversary Dinner and Ruby Care Sdn. Bhd.
 1ST EVENT:
MANJONG COMMUNITY ANNIVERSARY DINNER

●
The 50th anniversary celebration dinner
for 600 people

EVENT

▪ Average Profit Margin Of Event Management In Market Is 30%

●
The total cost is RM 41,565.80 and the
costs is calculated based on the cost per
 2ND EVENT:
RUBY CARE SDN BHD

●
One day seminar and the package
chosen by the client
●
Reservation is 15 to 30 people

EVENT

● ▪ is
The total cost Average
RM 765Profit Margin Of Event Management In Market Is 30%
●
The costs allocated is based on the
specific percentage of cost to price for
SWOT ANALYSIS OF THE CASE
SRI SURIA HOTEL
 STRENGTH
OF SRI SURIA HOTEL

strategic location

●
the hotel location is famous for the good connectivity of transportation network around the city, the beautiful landscape and iconic limestone hills of Perak
●
strategic location of the hotel has captured the attention of the local and international tourists, the travelling families as well as the business travellers as
they are able to access and enjoy the good facilities around the city while being as guest of the Sri Suria Hotel.

well established

●
have been in operation for almost 10 years and able to maintain their profitability and good performance in the market
●
the collection of expertise in the organization levels and the experience gained by the management in managing the
 WEAKNESSES
OF SRI SURIA HOTEL

cost controller focused more on costs

●
has failed in managing and controlling the cost of on-site event management services as the average profit margin in the market is
higher compared to the profit margin of the hotel
●
focused more on the costs rather than paying attention to other contingent factors and alternative strategies in controlling the cost

ineffective price strategy

●
profit margin of the hotel is lower compared to the market due to ineffective pricing strategy
OPPORTUNITY
OF SRI SURIA HOTEL

maintain sustainability in dynamic environment

●
actively participate in the emergence of Internet function where they utilize the social media and internet
marketing platform to capture and provide information on the services rendered in Sri Suria Hotel
●
to adapt the changes in Internet function is an example to show that the hotel is able to maintain their
sustainability for a longer period of time in the future in this dynamic environment
THREAT
OF SRI SURIA HOTEL

bad performance and reputation of the hotel

●
ineffective price strategy may effect company’s performance
●
management have to bear more costs in the service rendered to the customers
●
will lead to bad reputation to the Sri Suria Hotel and the hotel may unable to be
competitive in the market along with the other competitors
 1st ISSUE:

COSTING STRATEGY THAT HAVE BEEN USE BY SRI

SURIA HOTEL
1ST ISSUE:
COSTING STRATEGY THAT HAVE BEEN USE BY SRI SURIA HOTEL

 There have shown some weaknesses in cost management where the event cost
are apply too high and resulting in low profit for the hotel.
 According to Bromwich and Bhimani (1989), it proposed cost management has
relationships with the factors of the outer enterprise. Their approach has
strategic dimensions for its long scale.
 Since the Costing method that have been use by the hotel are irrelevant
because it can be seen that the costing practice are base on percent of the
selling price and show there have no specific strategy
RECOMMENDATION
FOR 1ST ISSUE: COSTING STRATEGY THAT HAVE BEEN USE BY SRI SURIA HOTEL

 First Strategy using Activity Base Costing

 Research on ABC adoption by Briedley, suggests that one of the major perceived benefits
from implementing ABC is the more accurate cost information for product costing.
 The 4 steps are involved at the design of ABC systems in hotels Is
 1) identifying activities,
 2) assigning costs to cost pools,
 3) selecting appropriate cost drivers for assessing the cost of activities to cost
objects, and
 4) assigning the cost of the activities to services and to customers
 Despites the fact that many studies apply ABC costing as the strategy provide accurate
costing breakdown however It is impossible to allocate all overhead costs to specific
activities.
RECOMMENDATION
FOR 1ST ISSUE: COSTING STRATEGY THAT HAVE BEEN USE BY SRI SURIA HOTEL

 Second strategy use Balance scorecard Strategy

 This is to solve the issue of weak cost structure resulting bad cost decision in Sri
Suria Hotel.
 It is as a measurement tool for translating organizational vision into a set of
measurable strategic and tactical objectives. It measures for four different
perspectives;
1.the financial perspective
2.the customer perspectiv
3.the process perspective
4.the learning and growth perspective
APPLICATION
FOR 2ND STRATEGY: BALANCE SCORECARD

1ST Articulate the strategy first

2ND Looking ways to measure the strategy
– As Sri Suria Hotel want to achieve average profit margin in market which is 30%,
thus the general manager of the hotel should,
1ST : Set main objective of Sri Suria Hotel is to ‘’improve profitability”
2ND : Need to set KPI for every perspective
1. Financial Perspective
2. Customer Perspective
3. Process Perspective
4. Learning And Growth Perspective
APPLICATION
FOR 2ND STRATEGY: BALANCE SCORECARD

 Let say , the standard KPI of Sri Suria Hotel are,

1. Shareholders satisfaction
2. Add and retain high-value customers
3. customer relationship
4. analyse of the guests’ expectations from the event
APPLICATION
FOR 2ND STRATEGY: BALANCE SCORECARD

 1ST FINANCIAL PERSPECTIVE

 Sri Suria Hotel should measure defines the long-term objectives, ‘improve profitability’
 Standard KPI: increase shareholder satisfaction.
 How can Sri Suria Hotel increase its profit?
 Uses different measures such as increasing in Productivity growth and Revenue growth.
 To gain productivity growth,
 Decreasing their operational costs
 Optimizing the usage of the resources.
 Application to Sri Suria Hotel: hall rental should not be included as operational cost
To gain revenue growth,
 Improving their current profitability.
 Application to Sri Suria Hotel: Raising selling price at acceptable level
APPLICATION
FOR 2ND STRATEGY: BALANCE SCORECARD

 2ND CUSTOMER PERSPECTIVE

 Sri Suria Hotel should defines measure on customer relationship

 Standard KPI : improving customer value,
 There are 2 types of customers – hotel guests and partners.
 Partners:
 The generic goal: Achieve and retain win-win partner relations.
 One of the sub-goals: Improving hotel’s image on booking websites.
 Application to Sri Suria Hotel: display hotel ratings in booking websites.

 Hotel guests
 Focus on high-value customers
 Improve their hotel experience.
 Application to Sri Suria Hotel: serve food and beverage with the suitable menu,cost and price package.
 APPLICATION
FOR 2ND STRATEGY: BALANCE SCORECARD

 3rd INTERNAL BUSINESS PERSPECTIVE

Standard KPI : meet the customer’s expectations

There are some ways to meet the customer’s expectations which are;
1. Keeping the customer database
– Include contact information, like the person's name, address, phone number, and e-mail address.
– Application to Sri Suria Hotel: update upcoming promotion and special event through the customer
2. Analyzing customer feedback
– addressed by some brand and quality programs.
– Application to Sri Suria Hotel:
– make an improvement of their services.
– makeover the existing package
APPLICATION
FOR 2ND STRATEGY: BALANCE SCORECARD

 4TH LEARNING AND GROWTH PERSPECTIVE

Standard KPI : learn and analyse of the guests’ expectations from the event.
Application to Sri Suria Hotel:
 provide skilled employee that are common with the event,
 to ensure the services received by the customer are good quality, and achieving overall
objectives
On this perspective also , Suria Hotel need to question in their mind that:
• What are the expectations of their guests from the event?
• What additional service might their guests need?
• What are the factors of high or low scoring rate on booking websites?
CONCLUSION
FOR 1ST ISSUE

–Sri Suria Hotel Should choose the 2nd recommendation ,Balance scorecard
strategy.
 Paying enough attention to financial and non financial measures
 Meet overall purpose of Sri Suria Hotel which to obtain average 30% of profit
margin.
–ABC costing

 Include a small number of cost drivers and calculate the cost of a rather small
number of activities.
 2ND ISSUE:

PRICING STRATEGY
2ND ISSUE:
PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

– The pricing of the event management in Sri Suria Hotel isn’t right because the
profit gained from event management service is not even near to the average in
the market.
– This shows that there is something wrong with its pricing strategy.
– The profit margin from both events doesn’t meet the average profit margin of
the market which is 30%.
– To solve this issue, a new pricing strategy must be developed.
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Deals with:
– complexity of market competitiveness.
– cost structure
– profit goals
– price/demand sensitivity
– service unique characteristics
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

combining 6 pricing approaches which are:
– traditional competitive-oriented approach;
– extended cost-oriented approach
– differentiation premium approach
– client-driven approach
– bundle pricing approach
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Why those pricing approaches are being combined?
– The combination of these six pricing approaches is chosen because of their
managerial implications for price setting in service firms.
– Applying each of the pricing strategy at one time doesn’t simultaneously fulfill
the demand and supply, profit, unique service characteristics and cost
structure.
– This does not mean the above pricing approaches are not useful. Rather, it
reflects the complexity and difficulty of pricing in the real business world.
 RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

Targeting
competitor and Formulation of a cost Adjustment to standard
market positioning plus price (CPP) price limit (SL)

1 3 5
1 3 5

2 4 6
2 4 6
Formulation of a Determine the
market premium Comparing
client-driven service
service price (MPC). CPP vs MPC
price (CDSP)
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 1: Targeting competitor and market positioning
– identify its competitors
– the competitors must also offer the same services as Sri Suria Hotel which is on-
site event management
– developing a market comparable basis based on the research of competitors’ rate
– for the purposes of our example, the average standard price of these hotels’
event management services is RM90 per head.
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 2: Formulation of a market premium service price (MPC).
– MPC = (1 + SDP) * competitors average rate
– SDP is the service differentiation premium
– SDP can be generated from the result of customer surveys
– An adoption of differentiation premium pricing approach
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 2: Formulation of a market premium service price (MPC).
– SDP = (Ap+ Rtp + CIp + Psp)/4.
(1) availability premium (Ap);
(2) reputation testability premium (Rtp);
(3) commitment incentive premium (CIp); and
(4) price sensitivity premium (Psp).
– each of these factors ranges from +1 to –1
– excellent reputation in providing variety of services to its customers and the hotel is conveniently
located
– SDP = (0.2Ap + 0.2Rtp + 0CLP + 0.1Psp) /4 = 0.13
– MPC = (1 + 0.13) * RM90 = RM91.13
 RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 3: Formulation of Cost Plus Price (CPP)
– CPP is computed by the traditional cost-oriented pricing approach along with the adjustment of percentage of production
capacity used in a particular service delivery.

CPP = [ VC + (PC * FC) + PG]

Where:
– CPP = internal cost-plus price;
– VC = variable cost;
– FC = fixed cost;
– PC = production capacity needed for the delivering purpose;
– PG = profit goal.
 RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 3: Formulation of Cost Plus Price (CPP)
– Consider capacity utilization - services cannot be stored like manufactured products, and unused
capacities are revenues foregone.
– CPP must be based on the occupancy rate of different seasons.
– CPP is a managerial expected price which contributes a desirable profit to a service firm.
 Example for Sri Suria Hotel:
CPP = 10 + (50 x 0.5) + 10
= RM 45.00
 RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 4: Market premium service price compared with cost-plus price
– Comparing MPC with CPP
 If MPC is ≥ CCP, then MPC is the chosen service price (SP)
 If MPC is < CPP, the differentiation premium must be improved.
– Some of the ways to improve SDP are:
 Increasing availability of the service enhancing the service provider’s reputation
 offering incentives to stimulate repeat business and customer loyalty
 and, attempting to desensitize the consumer to price through service attributes that are not easily emulated in the
short term
– By referring to the case, MPC are equal to RM91.13 while CPP is RM45, as the MPC is greater as compared to
CPP, MPC of RM91.13 will be chosen service price (SP).
RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 5: Adjustment to standard price limit (SL)
Check whether the SP lies within the range of price standard limits (SL).
– If not, SP will be replaced by:
 SL ceiling price (if the SP is higher than SL ceiling price)
 SL floor price (if the SP is lower than SL floor price)
– Therefore, the SP after SL adjustment can be expressed as:

SP(SL) = f (SP, SL-ceiling price, SL-floor price)

 RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 5: Adjustment to standard price limit (SL)

Upper limit Marketing

(highest price consumers
willing to pay) Retailing

• We can conclude from this example:

(Floor price) RM 50 < SP = RM 91.13 < RM 100 (Ceiling price)

RECOMMENDATION
FOR 2ND ISSUE: PRICING STRATEGY IMPLEMENTED BY SRI SURIA HOTEL

 MULTI-STEP SYNTHETIC SERVICE PRICING APPROACH

Step 6: Determine the client-driven service price (CDSP)
– Negotiation with clients and pricing experience would be the basis for determining
CDSP. The CDSP may result in different prices for different segments.
– For example:
 offer a corporate rate for the large corporations. E.g: AGM, EGM & annual dinner.
 Offer a regular or special rate for the general public. E.g: wedding event, birthday event
& family day event.
CONCLUSION
FOR 2ND ISSUE

• Helps to provides useful guidelines for service pricing.

• The synthetic approaches considers simultaneously the crucial
aspects of service pricing.

Important aspects of service pricing:

• market competitiveness;
• internal cost-profit structure;
• bundling and unbundling services pricing;
• service characteristics premium;
• price standard limits;
• client-oriented price/demand sensitivity; and
• client-oriented profit maximization.
REFERENCE
Author Wei Tung, Louis M. Capella and Peter K. Tat
Year 1997
Journal THE JOURNAL OF SERVICES MARKETING, VOL. 11 NO. 1
Title of Service pricing: a multi-step synthetic approach
article

Page/ Page 53-65

link https://www-emerald-com.ezaccess.library.uitm.edu.my/insight/content/doi/10.
1108/08876049710795685/full/html