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Amy M. Gregory, PhD University of Central Florida Rosen College of Hospitality Management [email protected] Strategic Pricing. Today’s topic:. The Function of “Price”. Business objective Break even Profit Loss Consumer objective Worth Status

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Amy M. Gregory, PhD

University of Central Florida

Rosen College of Hospitality Management

[email protected]


Strategic pricing
Strategic Pricing

Today’s topic:


The function of price
The Function of “Price”

Business objective

Break even

Profit

Loss

Consumer objective

Worth

Status

Signal to consumer

Fair

Expected

Equivalent to value

It’s not about the gas…


Motivation
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
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

Value

What is received for what is paid….


Right price
Right Price

Choose your customer

Find the value

Price accordingly

Add some psychology!


Interesting headlines
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
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
Consumer Price Processing

  • Involvement

    • Active

    • Inactive

  • Attention to specifics

  • Value judgment

    • Specific

    • Reference


Pricing theory
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
Something to think about…

Which appears to be most different?

Pricing Set “A”

$79 $93

Pricing Set “B”

$75 $89


Conclusion
Conclusion

  • Position your product

  • Choose your customers

  • Set your price

    • Value

    • Willingness to Pay

    • Psychology


Thank you for your attention

Thank you for your attention.

Amy Gregory

[email protected]

407-903-8176


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