Price elastic Flashcards
Define Price elastic
Responsiveness of quantity demanded to a change in price
Formulae of Elasticitiy
% change in price
Less than 1 = Inelastic / Price inelastic
More than 1 = Elastic/ Price sensitive
Equals to 1 = no significant difference even if organisation makes an effort
Increase in price is offset by equal decrease in dit. mand so there is an negligible change in proft
% change in qty demanded > % change in price = elastic
What affects price sensitivity
- Closeness of substitutes etc. customers might switch to similar hotel standards etc. so offer unique experiences, focus on the intangible product. no similar offerings = advantage
- Time elapsed since price change etc. location is popular so won’t be as price-sensitive
- Portion of income spent on goods
etc. business travelers because paid by company. it will not affect his portion of income hence, not price sensitive
How to reduce price sensitivity?
- Unique offer
etc. that only your hotel have - Difficulty in comparing
etc. Putting in packages that include breakfast, laundry services - Ratio of price
Make ratio smaller than income - Improve loyalty
Range of VIP privileges that only they can enjoy
Motivation for purchase :
Types of customer behavioural selling strategies
- Image by Association
Using the product to match one’s identity or status. Steoreotype.
Peer pressured. - Time vs Price
Emergency need / time is critical. No longer price sensitive - Value vs Price
Think product is worth the value they are paying for
6 conditions for RV to be applied
- Relatively fixed capacity
- Capacity cannot be increased to accommodate the increase in demand, there is a need to select the right bookings to maximize profits - Time-perishable Inventory
- there are time-constraint products
- this must be utilized within a fixed time frame
- once the seats are gone, empty seats cannot be resold again / revenue gone
- urgency to sell
- careful planning is needed to maximize yield - Time-variable inventory
- during peak period > higher demand
- if demand stays constant, customers will not want to pay different airfares - Advance reservation
- have the ability to forecast/predicts to see what strategy to apply
- hotel has stability - Appropriate cost structure
- Fixed cost cannot be change
- Variable cost can etc. amenities/coffee - Segmentable market
- different groups apply different strategies
Pricing Strategies
1) Tactical
2) Strategic
1) Short-term issue
2) Changes Prices on same day to generate cash flows
1) Long-term aspect
2) Improve market shares / position
3) Align price point andproduct quality with target markets.
Define rate dilusion
Guests will pay a higher price when they believe that they are getting more for their money.
How to prevent rate dilution?
Rate fences: a barrier to prevent customers willing to pay higher rates from taking advantage of the lower rate
Types of rate fence
- Physical rate fence
etc. size, location, furniture - Buyer characteristic : age, affiliation to an institution or group
- Consumption characteristic :
When you use …. when ? peak period ? Time/duration/location - Transaction characteristic
involve time, place, quantity of purchase and flexibility of use
Ways to affect the way customers look at fairness
- Raise published rate eg. thought discounted price
- Make comparison rate difficult
eg. make into package, throw in some spa and breakfast - Offer additional benefits
etc. add value to make them think it is worth it
Ways to affect the way customers look at fairness
- Raise published rate eg. thought discounted price
- Make comparison rate difficult
eg. make into package, throw in some spa and breakfast - Offer additional benefits
etc. add value to make them think it is worth it
