Price

Definition:

• Defined as the tactical (tactische) variable.

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

• Possibility of acting on the price at any time (short term) according to the objectives

• Companies use price to increase their profits without expensive marketing strategies that usually yield (ertrag) results in the long term.

Differenz between stable and variable price:

• Stable: Museums, attractions, restaurants.

• Variable: Airlines, hotels, tour operators adjust prices to maximize short-term revenue

Speed and flexibility:

• Can be quickly adjusted, unlike other marketing tools

Revenue Impact:

• The only marketing element that directly generates revenue; others create costs.

Quality Indicator:

• Given the high level of consumer uncertainty.

Demand Regulator:

• Price changes influence temporary demand flows and volume

Clientele Filter:

• Prices help attract or deter specific types of customers (e.g., luxury hotels for affluent clients, excluding hooligans).

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

Competitive Tool:

• Effective but risky, as price wars can harm (schaden) all competitors

• 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 (opfer), 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 worth.

1. Price Components: Includes financial costs (money paid) and non-financial costs (effort, time, and inconvenience).

2. Non-Financial Costs:

   • Before Service: Searching for information.

   • During Service:

     • Time: Extra waiting (e.g., long check-in times).

     • Physical: Early flights causing inconvenience.

     • Sensory: Unpleasant environments or old facilities.

3. Reducing Non-Financial Costs: Feels Equivalent to a price cut and improves competitiveness.

4. Consumer Preferences: Many are willing to pay more for time-saving and convenience, but companies offer different service levels to cater to all budgets (e.g., EasyJet’s quick check-in).

Not one price strategy is right for all competitors (Depends on the goals and the marketing strategy)

• 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

Price Reflects Objectives: Pricing depends on the company's goals (e.g., positioning, market share). Clear objectives simplify price decisions

Example with achievalbe price (Objectives):

1. Survival:

   • Goal: Stay in business during tough times (e.g., excess capacity, recession).

   • Strategy: Set prices low enough to cover costs and remain competitive.

2. Maximization of Current Profits:

   • Goal: Achieve maximum short-term profits, liquidity, or investment recovery.

   • Strategy: Analyze demand and costs to set the most profitable price.

3. Market Share Leadership:

   • Goal: Dominate the market for long-term cost advantages and profits.

   • Strategy: Set low prices to attract more customers and gain market share.

4. Leadership in Quality:

   • Goal: Be recognized as the leader in product quality.

   • Strategy: Set high prices to reflect quality but reinvest continuously to maintain standards.

1. Coordination Required: Price must align with product design, distribution, and promotion.

2. Connected Decisions:

   • Other marketing mix decisions can influence pricing.

   • Alternatively, price can be set first, shaping the rest of the marketing mix.

3. Example:

   • Sol Meliá Group: Created the Sol brand with moderate prices to attract price-sensitive customers, demonstrating how price defines 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 (kolidieren) 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

Pricing Limits and Factors

• Limits:

  • Minimum price is determined by costs.

  • Maximum price is set by market structure and demand.

• Customer Perception:

  • Price reflects the product's benefits and perceived value.

  • Pricing should align with what customers value in the product.

• Market Segments:

  • Different segments value products differently.

  • Enhance valued attributes and remove non-valuable ones for each segment.

  • Adjust prices to match the perceived value for each segment.

Examples

• Budget Customers: Affordable accommodations for price-sensitive travelers.

• Luxury Markets: Premium pricing for excellent service and exclusivity.

Competitor Influence on Pricing

• Competitor presence and actions significantly impact pricing decisions, especially tactically.

Tactical Prices

• Definition: Short-term prices aimed at selling unused capacity.

• Usage: Adjusted in response to competitor actions or market conditions.

• Example: Last-minute offers to fill unsold capacity.

Strategic Prices

• Definition: Published prices set well in advance of service delivery.

• Purpose: Reflect long-term marketing decisions like target market and positioning.

• Characteristics: Stable and aligned with the company’s strategy.

• 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

Strategies to Reduce Consumer Uncertainty

• All-Inclusive Pricing: Simplifies decision-making by covering all costs upfront.

• Differential Pricing:

  • Based on Quantity: Discounts for bulk purchases (Großeinkauf).

  • Based on Season: Adjusted prices for peak and off-peak seasons.

  • Based on Consumer: Tailored prices for specific customer groups (e.g., seniors, students).

• Random Discounts: Offering unexpected price reductions.

• Include guarantees like partial/full refunds or price adjustments for changes between booking and service delivery.

  Examples:

  • For Consumers: Refunds if unsatisfied or for price fluctuations.

  • For Suppliers: Tour operators guarantee payment for hotel rooms, offering security to hoteliers in exchange for lower prices.

Tourism Products: Combine basic services (e.g., transportation, accommodation) with extras (e.g., meals, entertainment).

1. All-Inclusive Strategy:

   • One price for all services.

   • Ideal for those avoiding frequent payments or unexpected costs.

   Separate Pricing Strategy:

   • Individual charges for each service.

   • Ideal for those who valuing flexibility or paying only for what they use.

• Discounts offered for larger reservations.

Example:

• Tour operators reserving many hotel rooms or airplane seats pay reduced rates.

• Creates a competitive advantage for operators and increases hotelier dependence on them for capacity marketing.

• Tourism companies adjust prices according to demand fluctuations throughout the year.

  Strategy:

  • Higher prices during peak seasons.

  • Discounts during off-peak periods to attract customers.Tourism companies must adjust the prices of their products or services based on the quantity demanded in each period of the year

• Loyalty Programs: Discounts or benefits for repeat customers.

• Confidential Rates: Special prices for specific categories, e.g., business travelers.

Part of a broader relational marketing strategy to build strong customer relationships and prioritize high-value segments.

Price reductions offered unexpectedly at certain times or places, with no prior notice to the buyer.

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

Pricing strategies for new products

• Market introduction pricing

Sets a high price to establish a luxurious and exclusive brand image.

• Maintained throughout the product's life cycle.

• A low price risks misaligning the product's positioning and failing to attract the target audience.

• Common in high-end hotels and restaurants aiming for an upscale market.

• Definition: Setting a high price when customers are not very sensitive to price changes.

• How It Works: The high price targets a small, profitable group of customers willing to pay more.

• Example: A hotel in a small town charges high prices during a busy season due to limited rooms and high demand.

• Limitation: This strategy works short-term because competitors may notice the demand, enter the market, increase supply, and force prices down.

• Definition: Setting a low initial price to attract a large number of customers quickly and gain a significant market share.

• Requirements: This strategy works if the company can lower fixed costs and if the target market is highly price-sensitive.