Amy M. Gregory, PhD University of Central Florida Rosen College of Hospitality Management
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Transcript of Amy M. Gregory, PhD University of Central Florida Rosen College of Hospitality Management
Amy M. Gregory, PhDUniversity of Central FloridaRosen College of Hospitality [email protected]
STRATEGIC PRICINGToday’s topic:
The Function of “Price”Business objective Break even Profit LossConsumer objective Worth StatusSignal to consumer Fair Expected Equivalent to value
It’s not about the gas…
Motivation
• The “right” price is equal to exactly what the customer is willing to pay….• $ = WTP• $ > WTP (seller lost buyers)• $ < WTP (seller lost revenue)
Desire
Ability
Willingness
Willingness to Pay • Discounting
• Good “deal” for the consumer• May attract the “wrong customer”
• Does not create loyalty or repeat purchase
• Not a long term strategy• Basic math….
• Price – Fixed & Variable Costs = Profit
ValueWhat is received for what is paid….
Right Price
Choose your customer
Find the value
Price accordingly
Add some psychology!
Interesting headlines….
• Hotel guests willing to pay extra for good service (PwC Experience Radar, 2012)
• Hotels.com Price Index Shows Hotel Pricing Up 4 Percent Worldwide
• Add-on fees poised to expand beyond airline industry (Chicago Tribune, September 2, 2012)
Mindset shift
• Business pricing for the mind of the consumer• Neoclassical Price Theory (Marshall, 1890)
• Maximization of utility• Law of diminishing marginal utility• Consumers are rational
• Psychological Price Theory (Ajzen & Fishbein, 1975)• Theory of reasoned action• A persons’ behavioral intention depends on the attitudes about the
behavior and the subjective norms• Combination of the two (Gu, 2011)
Consumer Price Processing• Involvement
• Active• Inactive
• Attention to specifics• Value judgment
• Specific• Reference
Unconscious Concious
Pricing Theory• Magnitude effect• Odd effect• Left digit effect• Influence of color• 5 has special status
• 2, 3, 4 = small• 7, 8, 9 = large
Something to think about…
Pricing Set “A”
$79$93
Which appears to be most different?
Pricing Set “B”
$75$89
Conclusion
• Position your product• Choose your customers• Set your price
• Value• Willingness to Pay• Psychology