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Amy M. Gregory, PhD University of Central Florida Rosen College of Hospitality Management

Amy M. Gregory, PhD University of Central Florida Rosen College of Hospitality Management Amy.Gregory@UCF.edu. 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

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  1. Amy M. Gregory, PhD University of Central Florida Rosen College of Hospitality Management Amy.Gregory@UCF.edu

  2. Strategic Pricing Today’s topic:

  3. 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…

  4. 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

  5. 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….

  6. Right Price Choose your customer Find the value Price accordingly Add some psychology!

  7. 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)

  8. 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)

  9. Consumer Price Processing • Involvement • Active • Inactive • Attention to specifics • Value judgment • Specific • Reference

  10. Pricing Theory • Magnitude effect • Odd effect • Left digit effect • Influence of color • 5 has special status • 2, 3, 4 = small • 7, 8, 9 = large

  11. Something to think about… Which appears to be most different? Pricing Set “A” $79 $93 Pricing Set “B” $75 $89

  12. Conclusion • Position your product • Choose your customers • Set your price • Value • Willingness to Pay • Psychology

  13. Thank you for your attention. Amy Gregory Amy.Gregory@UCF.edu 407-903-8176

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