MAF671

Case 2: The Price is Right

Annastasia Henry 2016263132
Adibah Ismail 2016263008
Nor Aina Nasrol 2016263064
Farhani Arini Pendi 2016263022
Ainaa Nadhirah Md Nasir 2016270332

Prepared for Dr Tuan Zainun Tuan Mat

CLASS : 8C
 SRI SURIA HOTEL (SSH)
• Suria Maju Resources opened first flagship hotel in 2008.
• Started in business since 1970 with snack products and
later, consumer goods and health products.
• The location of Sri Suria Hotel is very strategic whereas
its well connected by transportation including highway
and railways.
• SSH consists of more than 300 units of rooms with
various capacity.
• SSH has other facilities such as gym, spa, pool, children
playroom, convenience store & wide variety of dining
outlet.
 INTRODUCTION

• Located in Ipoh, Perak and had been in

operation for 10 years.
• Main source of revenue is on-site event
management.
• In 2017, the profit was too small for this line
of business.
• In a recent meeting, the Board was concerned
with SSH's management which practiced cost
control and competitive pricing for event
management activities.
 Event Facilities
Four types of facilities for events

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Meeting Conference
Private rooms Ballroom
rooms Centre
 SERVICE PROCEDURES

Appointment
How to book procedures

Availability Cancellation terms

Deposit and Payment Entertainment

ISSUE 1 • Weak pricing strategy since The Cost Controller of Sri
Pricing Strategy Suria Hotel focus on to compete with other hotels
and be over their competitors.
• The company does not use markup pricing or does
not impose charges for decorations to guests.
• Some items are also over-price and under-price so
they get profit below half of the price charge.

• Sri Suria Hotel does not charge any extra charges or

gain profit from the outsourcing decoration services
• For some items, Sri Suria Hotel only gain a profit less
than 50% such as carpak, audio visual and
equipments.
• Also, some of the items are also too costly such as
food and beverages.
 COST-PLUS-PRICING STRATEGY
• Cost plus pricing involves adding a mark up to
the cost of goods and services to arrive at a
selling price.
• In order to derive the price of the product:
 add together the direct material cost, direct
labour cost, and overhead costs for a product,
and add it to a mark up percentage.
• In an articles of An empirical investigation of the
importance of cost-plus pricing. “Many
companies in the service sector have a relatively
high labour content with respect to services
provided. Due to the service industry’s greater
ability to differentiate services offered, it is
expected to be more orientated towards price
making than price taking.”
Recommendation
• The total of cost for the event is RM 41,656.80 which
is too costly and beside that, they only earned RM
47,280.00 from the event and this made their profit
lower.
• The profit margin that Sri Suria Hotel gain from the
event is just at 11.89% which is lower than average
profit margin of event management business.
• Sri Suria Hotel should cut down the cost for some
area like food and beverages, utilities by using cost-
plus-pricing strategy “Cost-plus pricing can lead to
powerful differentiation, greater customer trust,
reduced risk of price wars, and steady, predictable
profits for the company.” (Utpal,2018)
• With this way, they can increase their profit margin
and maintain the profit margin at desirable
percentage.
 Customer value-based costing
Customer value-based pricing means
determining the price based on buyers’
perception of value.
Companies that offer unique or highly
valuable features or services are better
positioned to take advantage of the value
pricing model.
“This approach tends to result in very high
prices and correspondingly high profits for
those companies that can persuade their
customers to agree to it. It does not take into
account the cost of the product or service, nor
existing market prices.” (Steven,2020)
So this might be a better strategy for Sri Suria
Hotel since the Board are interested in
possibilities to generate better return for the
event management services.
Recommendation
Sri Suria Hotel is located strategically in the capital city
of Perak and a well-connected by transportation network.
The price is also calculated based on a customize package
prepared according to what client has requested.
We can assume that Sri Suria Hotel gained trust from
their customers and operated well in the previous since
they have been in the industry for 10 years.
From this cases, Sri Suria Hotel can make the package
more interesting and flexible by trying features that are
different from any other competitors such as an unique
environment during the dinner or seminar.
This will make the customers feel satisfied if the price is
charged equivalent to the quality of the service that they
get.
 Recommendation
• 100% of the total revenue from decoration
services goes to the contracted supplier
• Sri Suria Hotel should at least earn
commission from the contracted supplier
who decorate the event since the hotel got
the contracted supplier into new contract.

• They can use commission-based pricing based

on profit margins. It is based on the supplier’s
marginal cost, “if your sellers don’t make a big
profit on their sales, you can’t take a big
commission. However, if they do, you can
increase your commission.” (Charlène,2019)
• Or Sri Suria Hotel could also have their own
team for decoration services. This will save
some cost and time and this will offer much
cheaper price for the customers.
 ISSUE 2 Breakeven of event costs for Mahjong Community
Poor Cost Method Used Anniversary Dinner :
• Sri Suria Hotel does not have a appropriate
method on deciding their cost as they currently Items Cost per Unit Total Cost (RM)
(RM)
use a traditional way to prepare the costing.
Food 18.72 11,232.00
• Also, the percentage of cost is not constant and
does not mentioned where Sri Suria get the Beverage 1.30 780.00
percentage from. Hall rental 5.00 3,000.00
AV and Equipment 4.00 2,400.00

Recommendation Car park 2.10 1,260.00

• Cost controller of Sri Suria Hotel should Decorations 6.00 3,600.00
use a appropriate costing method in order Salaries 19.70 11,820.00
to increase their profitability to achieve Operating Supplies 6.30 3,782.40
target 30%
Utilities 6.30 3,782.40
• There are few costing method options can
Total Variable Cost Per 69.42 41,656.80
be apply by Sri Suria Hotel: Unit

 Activity Based Costing (ABC)

 Target Costing
TARGET COSTING It is a system where a company need to plans in advance for price
points, product costs and target margin that want to achieve for
the product.
Target cost = Selling price/ Target price – Target profit
The method can increase management effectiveness in managing
the cost so that it could attract customer and increase profitability
by reducing overall cost of services through the whole stages
involved.

Stages

1. Determine 4. Reduce
2. Deduct a 3. Estimate
target price desire profit anticipated
actual cost of
margin cost
production
• Management should focus on
customers’ needs and request
with reasonable service prices
• Assumed that the target price
for annual dinner is RM45,000
and Sri Suria Hotel is expected to
earn profit of 20%, therefore the
calculation is :
Net selling price 45,000
(-) estimated target profit (20%) (9,000)
Target Cost 36,000
Recommendation
• Cost controller of Sri Suria Hotel
must have a proper advanced
planning in incurring the cost
involved.
• Cost controller should estimate
the target price of its service
with certain desired rate of
return, which are 30%.
 Activity Based Costing (ABC)

• This method focuses on activities as Steps :

the main cost objects.
Identify major activities that take
• The vital benefit of ABC adoption is 1
place in organization
the more accurate cost information
for the product (Cooper & Kaplan,
2 Assign cost centre for
1991 ; Cohen, Venieris &
each activity
Kaimenaki,2005).
• As a hospitality industry, focus on
Determine the cost
activities can improve customer 3
driver for each activity
service and assist management to
eliminate non-value added activities
or reduce unnecessary services that Assign the cost of
4
cause extra cost. activities to products
 RECOMMENDATION ON METHOD
• Cost controller should eliminate or reduce excess target cost such
as unnecessary non-value added costs.
• Sri Suria Hotel could cut cost of food and beverages package by
seeking for supplier that give low price or discount but with great
quality.
• Also, Sri Suria Hotel should revise on decoration cost by finding
suppliers that have reasonable price or willing to give discount but
with a good quality. Thus, it can reduce the decoration cost.
• Instead of allocate the salary range 25% from total revenue, Sri
Suria Hotel can paid their staff based on time spend on the event
and reduce number of workers for an event

CONCLUSION ON ISSUE 2
In this case, Sri Suria Hotel that provide event management service to
its clients based on the client’s needs can apply target costing
method on its calculation of cost and use Activity Based Costing to
control the cost to make sure that the cost is low so that they can
earn the average profit margin of event management business which
is 30%.
 ISSUE 3
Weak Event Management of Sri Suria Hotel
The revenue To achieve a
generated by Sri better result, Financial
Suria Hotel's event Sri Suria Hotel should
management perspective
study some aspects of
activities is event management Customer
marginally lower activities to increase
from 11.89% to perspective
the efficiency of
23.5%. their operations.
This shows that Sri
Internal business
Improvement
Suria Hotel has can be made ;
process perspective
financially
underperformed and
has plenty of space
to do better.
 Financial Perspective
1) Carpark Charge

Issue
Recommendation
• Parking fees paid in hotels per day
are no longer competitive, but are Sri Suria Hotel is advised to
more convenient for consumers. enforce the parking system
• The cost of parking per car for Sri which charges its customers
Suria Hotel is RM2.10, while the hourly rather than daily.
revenue per car is RM3 for its
parking.
 Customer Perspective
1) Customer Service

Issue
• Knowing the importance of good
customer service in attracting new
customers, retaining existing
customers and building
recommendations for potential
customers is important for a
successful company.
Recommendation
• Sri Suria Hotel needs to develop its
customer service department to
respond quickly and efficiently to
customer requests.
• Can enforce this with the marketing
relationship that encourages Sri Suria
Hotel to establish relationships with
customers, peers, suppliers and
partners in order to retain its loyalty to
the company
 Customer Perspective
2) Online Review

• Feedback from customers is very important in the

service industry for determining customer
satisfaction.
• Sri Suria Hotel should consider seeking guest
feedback after leaving such as in automated email
alert or on the website.
 Internal Business Process Perspective
1) Cancellation terms

Issue Recommendation
• Sri Suria Hotel should set the
• The hotel succeeds in reselling the
cancelation differently and
date canceled, any profit earned will
shorten the duration as there
be completely deducted from the
should be no fee for cancelation
cancelation bill.
within a year of half of the year.
• There may be some ambiguity here
• e.g - Cancellation within 3-month
that leads to the issue of their
prior event will be charged 50%
service being reliable
of total booking.
 Internal Business Process Perspective
2) Online booking
Recommendation
• Hotel Sri Suria needs to improvise their online reservation and apply it to their
event management activities.
• Through booking for event spaces online and integrating technologies such as
Augmented Reality (AR), it allows consumers to check their event room and
experience easily without having to come to the venue.

CONCLUSION FOR ISSUE 3

In a nutshell, Sri Suria Hotel is underperforming in few aspects which
they should improve in order to perform better and up to average
benchmark.
 OVERALL CONCLUSION FOR THE PRICE IS RIGHT CASE

• The main issues of SSH are costing strategy and pricing strategy
• Proper implementation of a new costing strategy, target costing method,
Activity Based Costing, and new pricing strategy, Cost Plus Pricing,
commission-based pricing will help improve SSH's profit margin.
• A good process for event management in financial perspective, customer
perspective and internal business also can help to increase the profit for the
upcoming year.
Thank You