Price

Definition:

• Defined as the tactical (tactische) variable.

• This definition is due to the possibility of acting on the price variable at any time, in the short term, modifying (Ändern) it according to the objectives to be achieved.

• Companies use price to increase their profits in the short and medium term without having more expensive marketing strategies that usually yield results in the long term.

• Price is the only element in the marketing mix that generates revenue; all other elements involve expenses.

•  Prices are quite stable in museums, attractions, restaurants, etc.

• Prices constantly vary in an attempt by their management to maximize short-term revenue: tour operators, airlines, hotels, etc.

Short-term instrument: it can be acted upon with speed and flexibility superior to other marketing instruments.

Used by the consumer as an indicator of product quality: given the high level of consumer uncertainty.

Acts as a regulator of demand volume: price alteration (Preisänderunge) allows influencing the intensity of temporary demand flows and the volume of demand for a given period.

Acts as a filter for selecting the type of clientele: sometimes it is difficult to reconcile (zu vereinbaren) clientele with different characteristics and behaviors (e.G., Hooligans).

Some people visit certain establishments because of the type of people who frequent them. Example: luxury hotels.

It is the only marketing variable that directly affects revenue and profits; other variables entail costs for the company.

It is a powerful competitive tool: but it can also be dangerous if a price war is triggered because, in the end, no one will benefit.

• Price can be defined as the amount of money required to acquire a certain quantity of a good or service.

• Therefore, the price represents the sum of values that consumers exchange for the benefit of having or using a product or service.

From a marketing perspective, price encompasses more than just monetary costs. It also includes non-monetary sacrifices, such as the time, effort, and inconveniences a customer experiences to acquire the product. These non-financial costs, combined with the product's added value, shape the overall perception of its worth.

The price that the consumer pays for a particular service is the sum of financial costs and non-financial costs. The non-financial costs for the consumer of the tourism service include:

Costs before the service: searching for information.

Costs during the service:

time (having to check in an hour before the flight or having to do it three hours before);

physical (flight departing at 4 in the morning, as opposed to one departing at 8 in the morning);

sensory (associated with undesired sensations such as degraded environment, insecurity, outdated facilities, etc.).

Any action aimed at reducing the non-financial costs of the service is equivalent to a price reduction and makes the company more competitive.

Consumers are often willing to pay more to save time, minimize inconveniences, and enjoy greater convenience.

However, as not all consumers can or want to pay more, companies design various service levels. Example: EasyJet's quick check-in

Not one price strategy is right for all competitors

Depends on the goals and the marketing strategy

Price must be low enough to generate profits and not too high to generate demand

Product costs set the minmum

Costumers Perception (Wahrnehmung) of the products value establishes the upper of the price

These two factors influence the price:

Factors internal to the tourism company

Factors external to the tourism company

Factors internal to the tourism company:

Marketing objectives

Marketing mix strategy

Costs

Factors external to the tourism company:

Market structure and demand

Competitor actions

Can refer to any aspect of the company: positioning, market share, segments, etc. The clearer a company is about its objectives, the easier it is to set the price.

Example withe achievalbe price:

Survival: Companies with excess capacity (Überkapazität), intense competition, or facing an economic recession pursue (verfolgen) survival as their primary objective. In the short term, survival is more important than profits.

Maximization of current profits: sets a price that maximizes its current profits. This is done by calculating demand and costs at different prices for the product/service and choosing the price that will produce the most profits, maximum liquidity, or the recovery of the investment, seeking immediate results rather than long-term returns.

Market share leadership: Company wants to obtain a dominant position in the market because this way it would have the lowest costs and greater long-term profit. Therefore, low prices are set.

Leadership in production quality: Companies who leads in quality charge more for their products but also have to continuously reinvest in their productive assets to maintain their leadership position and quality standards. These companies set high prices.

The price must be established in coordination with the product design, distribution, and promotion

Decisions made for other variables in the marketing mix can affect decisions on pricing. In other instances, companies first make decisions about the price so that the rest of the decisions about the marketing mix are based on the price the company decides to charge.

Example: Sol Meliá Group created the Sol brand, a hotel chain with moderate prices, to target price-sensitive customers. In this case, the price defines the product characteristics.

• Represent the minimum level that a company must charge for its products

• A company's goal should be to charge a price that covers its production, distribution, and product promotion costs

• Additionally, the price must be high enough to cover the investment necessary

Fixed costs:

• Do not cary with production or sales volume

•  Expenses that the company faces to ensure its operation: rent, interest, salaries, etc. These costs are independent of the volume of production.

Variable costs:

• Depend on the level of production; their total varies with the number of units produced. Total costs are the sum of fixed and variable cost

• Limits: Costs set the minimum price, while market structure and demand set the maximum price.

• Customer Perception: Consumers relate price to the benefits a product offers, making value perception crucial.

• Marketing specialists must seek the reasons why customers choose a product and set prices according to the customer's perceptions of its value.

• Market Segments: Different segments value products differently:

  • Companies should enhance valued attributes and remove non-valuable ones.

  • Prices should reflect the perceived value for each segment.

• Examples:

  • Modest accommodations at low prices for budget-conscious customers.

  • High prices for excellent service in luxury markets.

• Presence and performance of competitors significantly influence pricing decisions.

• Competitor actions on pricing are especially important at the tactical level, where last-minute offers can be made

• Tactical prices are the actual prices at which one is willing to operate or sell capacity in the short term

  • when it is observed that there will be unused capacity with strategic prices, for example, last-minute offers.

    • Short-term pricing used to sell unused capacity.

    • Example: Last-minute offers

• Strategic prices are published prices sometimes months in advance of service delivery.

• These prices reflect the company's strategic marketing decisions (target market, company positioning, etc.).

  • Published well in advance of service delivery.

  • Reflect long-term decisions like target market and company positioning.

• Strategies to reduce consumer uncertainty

• All-inclusive pricing strategies

• Differential pricing strategies based on quantity

• Differential pricing strategies based on the season

• Differential pricing strategies based on the consumer

• Random discounts

• Involves including certain guarantees in the price, such as a partial or total refund under certain conditions

• Example:

  • possible price increases or decreases for the contracted service between the payment and enjoyment of the service.

  • involve some form of guarantee or full or partial refund of the amount paid if the customer is not satisfied

• Example for Supplier

  • Tour operators guarantee payment for contracted hotel rooms, whether they are actually occupied or not, providing great security to the hotelier (who, in return, accepts lower prices).

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1. Tourism Products: Include a basic benefit (e.g., transportation and accommodation) and complementary services (e.g., meals, entertainment).

2. All-Inclusive Strategy:

   • Combines all services into one price.

   • Ideal for customers who:

     • Dislike frequent small payments.

     • Want to avoid unexpected expenses.

3. Separate Pricing Strategy:

   • Charges for each service individually.

   • Suitable for customers who:

     • Prefer paying only for what they use.

     • Value flexibility (e.g., low-cost models).

• Reduced prices are charged based on the greater or lesser quantity of the product reserved

  • Example: Tour operators who reserve many hotel rooms or many airplane seats often pay reduced rates for these products

    • is a tour operators' greatest competitive advantages and increases the hotelier's dependence on these intermediaries regarding the marketing of their capacity

• Tourism companies must adjust the prices of their products or services based on the quantity demanded in each period of the year

• Strategie:

• Loyal customers are a great asset for tourism companies, so they offer certain benefits to their best customers.

  • Through loyalty programs, companies can offer different prices

  • confidential (vertrauliche) rates offered to customers belonging to specific categories, such as business travelers

• These strategies are part of a comprehensive relational marketing strategy, aiming to establish stable relationships between the company and the customer and identify high-profit customers to focus efforts on these segments.

These are the so-called offers; they involve reducing the price at certain times or places without the buyer having prior knowledge of when this will happen

Pricing strategies vary as a product goes through its life cycle. In

the case of new products, there are several options for setting

their price:

• Prestige image pricing strategy

• Market skimming pricing strategy

• Market introduction pricing

• Pricing strategies for new products

This strategy involves setting a price based on the type of image to be desired positioning

The company sets a high price and maintains it throughout the product's life cycle.

Hotels and restaurants aiming to position themselves as luxurious and elegant will enter the market with a high price that contributes to this positioning.

In these cases, a low price could lead the product to a different kind of positioning, failing to reach the target marke

• This strategy involves setting a high price when demand is insensitive to price

• An initial high price is set to skim a small but profitable market segment.

• Example: the owner of the only hotel in a small town may set high prices if there is more demand than rooms during a specific season

• Skimming pricing is an effective short-term policy because there is a danger that competitors will realize the high price consumers are willing to pay and enter the market, creating more supply and driving prices down.

• This strategy involves setting an initial low price to quickly penetrate the market, attracting the maximum number of customers and gaining a high market share

• It can only be applied if the company can reduce its fixed costs, and if the

  target market is price-sensitive.