Pricing / selling approach

Question 1

Cost Driven Approach

Answer 1

Pricing the product based on product cost. Companies will use their base cost and their desired profit margin to arrive at price of product.

Pros :

1) Logical - no need to be equipped with market knowledge
2) Easy to adopt - Only uses cost and desired profit target. There will not be different ways to be considered when using the approach

3) Start-up
Able to test price level at market
Recover cost and attain certain profit

1) Customers not taken into consideration

• not customer oriented
• price may not be what customer is willing to pay
• difficult to sustain sales sooner or later

Question 2

History driven approach

Answer 2

Use price from last year as a basis for the next

1) Easy to adopt
No much changes need to be considered when using this approach; simple
2) Make business sense
If the hotel has improved its sales by adopting this approach, makes sense to continue this.
3) Proven success
If hotel chooses to continue this approach, there would be some degree of proven success.
Minimum risk approach

1) Established price may not be the maximum yield
Although proven success, but there is still room for the yield to be maxmised
2) Not customer oriented
Customers wants and needs are not taken into consideration
3) Circumstances may change
etc. covid,19 ; it does not make sense to use the same approach due to economy has changed

Question 3

Budget Driven Approach

Answer 3

Every company has a certain financial target. Set price based on budgets by their management.

1) Meets KPI
- Company have KPI, if budget is achieved = KPI is met

2) Logical
- Team able to work-based on budget and quantitative factors

1) Not customer oriented
Prices may not be realistic as customers want / needs are not taken into consideration
Difficult to remain attractive to customers in long-run
2) Uses cost / revenue target

Question 4

Market-Driven Approach :

1. Customers-Driven

Answer 4

Based on how much customers are willing to pay

1) Able to sustain sales levels
2) Must be able to differentiate different market segment >

Question 5

Market driven

[ Demand ]

Answer 5

Set price based on level of demand of the product.

1) Company can meet desired demand or sales volume
2) Must know the market well to generate necessary volume as you need to know what is the right price to charge the right customer

Question 6

Market-driven approach

[ competitor-driven ]

Answer 6

Match prices based on competitors

1. Gain market share
2. Depends on the appropriateness of competitors prices, if they have priced their product right

Question 7

Top-down approach

Answer 7

Highest price available
Moves down the price list until customers come to an agreeable price
More room for opportunity to increase profit margin

1) Helps to improve revenue
2) Hotel sells expensive items first

1) Customers may get displeased by the tactic
2) Customers will always look for a lower price

Question 8

Bottom up selling approach

Answer 8

Begins at lowest price available and work up until customer reached an agreeable term for the price

1) Easy encourage quick-ins from customers as adoption is fast
2) Fast so its easier to convince customers and sell product to a wider market

1) Lacks potential to maximize revenue
2) Customers’ interest - most likely not interested in what the higher priced rooms have to offer/ value.

Question 9

Up-selling approach

Answer 9

Marketing higher-end products to the customers
Has a product up in their mind
Team helps to find product that may better fulfil their needs so they are more satisfied with their purchase.

1) Maximise Revenue by convincing customers to buy higher-end products

1) Customers feel pressured / squeezed from making decision
2) sales team must be equipped with excellence knowledge market/product and customer understanding / knowledge

Question 10

Benefit before selling

Answer 10

Introduce product features before advising the price and presenting to improve customers situation

1) May get impatient with the sales pitch
2) Selling team must be equipped with good product knowledge and customers behaviour

1) Focus on benefits and how product value can better fulfil customer needs make it easier for sales team to close transactions
2) Good buy in from customers, lesser satisfaction

Question 11

Menu quoting

Answer 11

Providing options for potential customers

1. Fewer customers complaints as they are selecting the best option for themselves
2. Customers oriented - feels empowered as they holds the purchase decision
3. Customers may feel confused since there are many choices
4. Good customer knowledge, must be able to know the customer well to offer suitable rooms
5. Revenue risk - Not able to maximize profits.

Question 12

Competitor driven :

Skim strategy

Answer 12

Charges price above market rate = have high margin
Attract customers who are willing to pay product at a high price
Sales volume to survive.

Question 13

Neutral

Answer 13

Charges high price / above average

Not concern with the volume of sales
Focuses on customers’ value to the product

Question 14

Undercut / penetration

Answer 14

Set low price as assume that market is elastic, will choose you over suppliers to your price
competition will lack the ability to match

Question 15

Match strategy

competitor driven

Answer 15

Prioritise competitors, directly match their price