An Inquiry Into Pricing Of Hotels

I H M - A A N I N Q U I R Y I N T O ‘ P R I C I N G O F H O T E L S ’

1 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Table of Contents

C h a p t e r 1 : C o n c e p t u a l i s a t i o n o f I s s u e ....................................................................... 4

1 . 1 I n t r o d u c t i o n ..................................................................................................................... 4

1 . 2 I s s u e I d e n t i f i c a t i o n ...................................................................................................... 4

1 . 3 D i s s e r t a t i o n A i m ........................................................................................................... 6

1 . 4 D i s s e r t a t i o n O b j e c t i v e s .............................................................................................. 6

1 . 5 S c o p e a n d L i m i t a t i o n .................................................................................................. 6

1 . 6 D i s s e r t a t i o n S t r u c t u r e ................................................................................................. 7

1 . 7 C o n c l u s i o n ........................................................................................................................ 7

C h a p t e r 2 : R e v i e w o f L i t e r a t u r e .................................................................................... 8

2 . 1 I n t r o d u c t i o n ..................................................................................................................... 8

2 . 2 R e v e n u e M a n a g e m e n t P a r a d i g m ............................................................................. 8

2 . 3 P r i c i n g f r o m t h e P e r s p e c t i v e o f E c o n o m i c s a n d M a r k e t i n g ................... 11

2 . 3 . 1 B u y e r s R e s p o n s e t o P r i c e ............................................................................... 11

T H E M A R K E T I N G M I X ................................................................................................. 14

2 . 3 . 2 H o t e l s D e t e r m i n a t i o n o f P r i c e s .................................................................... 16

M O N O P O L Y ...................................................................................................................... 18

O L I G O P O L Y ...................................................................................................................... 19

M O N O P O L I S T I C C O M P E T I T I O N ................................................................................ 20

2 . 3 . 2 I n d u s t r y a n d E c o n o my W i d e R o l e P r o c e s s ............................................. 22

2 . 4 B a r g a i n i n g T h e o r y o f P r i c i n g ............................................................................... 24

2 . 5 P r i c e i n S e r v i c e O r g a n i s a t i o n s ............................................................................. 27

2 . 5 . 1 S e l e c t i n g a P r i c i n g M e t h o d ............................................................................ 29

C O S T - B A S E D M E T H O D S ............................................................................................. 29

C O M P E T I T I O N - B A S E D M E T H O D S ............................................................................ 29

C U S T O M E R - B A S E D P R I C I N G ..................................................................................... 30

2 . 5 . 2 S e l e c t i n g a P r i c i n g P o l i c y .............................................................................. 30

2 . 5 . 2 E n v i r o n m e n t ........................................................................................................... 32

E C O N O M I C F A C T O R S ................................................................................................... 33

M A R K E T F A C T O R S ........................................................................................................ 34

2 . 6 C o n c l u s i o n ...................................................................................................................... 35


2 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

C h a p t e r 3 : R e s e a r c h M e t h o d o l o g y .............................................................................. 36

3 . 1 I n t r o d u c t i o n ................................................................................................................... 36

3 . 2 T h e R e s e a r c h P u r p o s e a n d F r a m e w o r k ............................................................. 36

3 . 3 T h e R e s e a r c h P r o c e s s ................................................................................................ 39

3 . 3 . 1 H y p o t h e t i c o - D e d u c t i v e M e t h o d ................................................................... 40

O B S E R V A T I O N S T A G E ................................................................................................. 40

P R E L I M I N A R Y D A T A G A T H E R I N G .......................................................................... 41

T H E O R Y F O R M U L A T I O N ............................................................................................. 42

H Y P O T H E S I S I N G ............................................................................................................ 43

F U R T H E R S C I E N T I F I C D A T A C O L L E C T I O N ......................................................... 44

D A T A A N A L Y S I S ........................................................................................................... 47

C O N C L U S I O N ................................................................................................................... 47

C h a p t e r 4 : D a t a A n a l y s i s a n d I n t e r p r e t a t i o n ......................................................... 48

4 . 1 I n t r o d u c t i o n ................................................................................................................... 48

4 . 2 R e s p o n d e n t O n e ............................................................................................................ 49

4 . 3 R e s p o n d e n t T w o ........................................................................................................... 52

4 . 4 R e s p o n d e n t T h r e e ........................................................................................................ 55

4 . 5 R e s p o n d e n t F o u r ........................................................................................................... 58

4 . 6 R e s p o n d e n t F i ve ........................................................................................................... 61

4 . 7 I n f e r e n c e o f P r i c i n g M e t h o d s ............................................................................... 65

4 . 8 I n f e r e n c e o f P r i c i n g P o l i c i e s ................................................................................. 65

4 . 9 I n f e r e n c e o f E n v i r o n me n t a l C h a r a c t e r i s t i c s .................................................... 67

4 . 1 0 C o n c l u s i o n ................................................................................................................... 68

C h a p t e r 5 : C o n c l u s i o n a n d I m p l i c a t i o n ................................................................... 69

5 . 1 I n t r o d u c t i o n ................................................................................................................... 69

5 . 2 R e s e a r c h O v e r v i e w ..................................................................................................... 69

5 . 3 I m p l i c a t i o n s ................................................................................................................... 73

5 . 4 S c o p e f o r F u r t h e r R e s e a r c h .................................................................................... 74

B i b l i o g r a p h y .......................................................................................................................... 75

B o o k s ..................................................................................................................................... 75

A r t i c l e s ................................................................................................................................. 75


3 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

List of Figures F I G U R E 2 . 1 : F OU R P ’ S O F MAR K E T I N G MI X . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 14 F I G U R E 2 . 2 : F O RM S O F I M P E R F E C T COM P E T I T I O N . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 18

F IGURE 3. 1: PROPOSED RESEARCH FRAMEWORK ................................................................................ 38 F IGURE 3. 2: HYPOTHET ICO ‐DEDUCT IVE RESEARCH METHOD ADOPTED FROM SEKARAN (1992) ...... 40

List of Tables T A B L E 4 . 1 : R E S P ON D E N T ON E ’ S R E S P O N S E T O P R I C I N G S T R A T E G Y . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 49 T A B L E 4 . 2 : R E S P ON D E N T ON E ’ S R E S P O N S E T O E N V I R O NM E N T A L C H A R A C T E R I S T I C S . ‐‐‐‐‐‐‐‐ 50 T A B L E 4 . 3 : R E S P ON D E N T TWO ’ S R E S P O N S E T O P R I C I N G S T R A T E G Y . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 52 T A B L E 4 . 4 : R E S P ON D E N T TWO ’ S R E S P O N S E T O E N V I R O NM E N T A L C H A R A C T E R I S T I C S . ‐‐‐‐‐‐‐‐ 53 T A B L E 4 . 5 : R E S P ON D E N T T H R E E ’ S R E S P O N S E T O P R I C I N G S T R A T E G Y . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 55 T A B L E 4 . 6 : R E S P ON D E N T T H R E E ’ S R E S P O N S E T O E N V I R O NM EN T A L C H A R A C T E R I S T I C S . ‐‐‐‐‐ 56 T A B L E 4 . 7 : R E S P ON D E N T F O U R ’ S R E S P O N S E T O P R I C I N G S T R A T E G Y . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 58 T A B L E 4 . 8 : R E S P ON D E N T F O U R ’ S R E S P O N S E T O E N V I R O NM EN T A L C H A R A C T E R I S T I C S . ‐‐‐‐‐‐‐ 59 T A B L E 4 . 9 : R E S P ON D E N T F I V E ’ S R E S P O N S E T O P R I C I N G S T R A T E G Y . ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 61 T A B L E 4 . 1 0 : R E S P O N D E N T F I V E ’ S R E S P O N S E T O E N V I R O NM E N T A L C H A R A C T E R I S T I C S . ‐‐‐‐‐‐ 62


4 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Chapter 1: Conceptualisation of Issue

1.1 Introduction

Thi s ch ap t e r co ns i s t s o f a b r i e f de s c r i p t i on o f t he i s s ue t h a t t h e

r e s e a r c h e r w ou ld l i k e to p u r s u e . I n t h i s d es c r ip t io n th e a u t h o r

i den t i f i e s t he ma i n a r ea o f r e s ea r ch . Th e ch ap t e r t h en con t i nu es to

desc r i be t he a i ms , ob j ec t i ve s , s cope and l i mi t a t i ons o f t he r e s ea r ch .

T h i s r e s e a r ch a i ms to f i n d o u t t h e r e l a t i o n s h ip b e t w een t w o

va r i ab l e s .

1.2 Issue Identification

A c co r d in g to M ck i n s ey ’ s c on s u l t an t s , t h e f a s t e s t and mo s t e f f e c t i v e

way f o r a f i r m t o ach i ev e max i mu m pr o f i t i s t o p r i ce s e rv i ce s

app r o p r i a t e l y , T u ng e t a l . ( 1 99 7) . P r i c e o f a p r o du c t o r s e r v i c e i s

t he on ly ma rk e t mix e l e me n t t h a t h e lp s g ene ra t e r ev enu e f o r t h e

o r gan i s a t i o n . A nu mb er o f au th o r s h av e r eco mmen d ed th e va lu e o f

p r i c i ng f o r ev e r y o rg an i s a t i on ’ s p r o f i t a b i l i t y an d l on g - t e r m

su r v iv a l . T hu s , i t i s c r uc i a l t ha t man a g e r s h av e a g oo d

un de r s t and in g o f p r i c e . I f a p r od uc t o r s e rv i ce i s o v e r c ha rg ed t h en

t he r e i s a t h r ea t o f l o s ing p r e sen t an d p r o s p ec t i ve cu s t o me r s , w h i l e

w h en ch a r g in g a d i mi n u t i v e a mo un t a n o r g a n i s a t io n w i l l l o s e

r ev en u e t h a t w ou ld h e lp ma i n ta i n th e o pe r a t io n s p r op e r ly o r h e l p i n

t he f u t u r e ex p an s io n .

In t h e h o te l i n du s t ry , t h e i n d us t ry cos t s t ru c t u r e an d th e p e r i sh ab l e

n a t u r e o f i t s p r o d u c t ma k e i t e x t r e me ly c r u c i a l t o s e l l t h e i r p r o d u c t

a t an o p t i mu m p r i c e . A h o te l r o o m w h ich i s u ns o ld on an y

pa r t i c u l a r n ig h t c a n no t b e s to ck ed t o s u bs eq u en t ly o f fe r t o gu e s t s

a t a l a t e r s t ag e . Thus , s e l l i ng e a c h r o o m e a ch n i g h t a t t h e b e s t

po s s ib l e p r i c e i s c r i t i c a l t o a ho t e l ’ s l o ng - t e r m s u cc es s . F r om a

mi c r o - e c on o mi c p e r s p e c t i v e , p r i c e i s t h e s i n g le mos t i mp o r t a n t

dec i s ion i n mark e t i ng .


5 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Pr i c ing i s t r ad i t i o na l ly r ecog n ized t o p l ay a cen t r a l r o l e i n t h e

f u nc t io n i ng o f t h e e co no mi c sy s t e m. T h e th r ee m a cr o - econ o mi c

f u nc t io ns o f p r i c e a r e : a l l o c a t io n o r r a t i on in g , o r t h e b a l a n c i n g o f

t he q u a n t i t i e s d e man d e d an d th o s e s up p l i ed ; s t i mu l a t i o n , an d a c t in g

a s an i nc en t iv e f o r n ew p l ay e r s an d p r od u c t s t o en t e r a

ma r k e tp l a ce ; an d d i s t r i b u t iv e , w h er eb y i nc o me i s d i s t r i b u te d

be t w een b uy er s a nd se l l e r s .

I n t e r na l mon e t a ry con s id e r a t i o ns an d ex t e r na l ma rk e t

con s id e r a t io n s a r e i n mos t o r g an i s a t i on s , i mp o r t an t f o r ces t h a t

de t e r mi n e t h e o r g an i s a t io n s p r i c in g s t r a t eg i e s . I n t od ay ’ s h ig h ly

co mp e t i t i ve mark e t , o rg an i s a t i on s mus t be aw ar e o f t h e

env i r o n me n t i n w h i ch t h e y o p e r a t e an d t h e ex t e r n a l f ac t o r s t h a t

i n f l u en c e t h e m. T h es e f a c t o r s can a f f ec t t h e ma i n i n t e r n a l f a c t o r s

o f t h e o r g an i s a t i o n an d i t s p r i c i ng p o l i c i e s o r ma r ke t in g s t r a t eg i e s .

The ex t e r n a l env i ron men t i s unp red i c t ab l e t o l a rg e ex t e n t an d ma ny

o f t he e x te r n a l f o r c es c a n c h an g e q u i ck ly an d d r a ma t i ca l ly an d a r e

u s u a l ly bey o nd a f i r m’ s co n t r o l . A l tho u gh s o me e x te r n a l f a c t o r s

c an pose a t h r ea t t o a bus ines s , t hey can a l so c r ea t e new

op po r tun i t i e s .

Th i s d i s s e r t a t i o n a i ms t o an a l y se th e r e l a t ion s h ip b e tw e en

env i r on men t a l ch a r ac t e r i s t i c s and p r i c in g s t r a t eg i e s i n t h e In d i an

h o s p i t a l i t y s ec to r . I t i s a r g u ed b y man y au th o r s t h a t en v i r o n men t a l

ch a r a c t e r s s u ch a s p o l i t i ca l s c en a r i o , eco n o m ics , a n d s o c io - cu l tu r e

o f t en a r e t h e d r iv i ng f ac t o r s f o r a n o r gan i s a t i o n in ad o p t i ng p r i c in g

p r ac t i c e s . T he au t h o r ho w ev er t h r ou g h th e r e s ea r ch w ou ld l i k e to

f i n d ou t ho w ch an ge in en v i ro n men t a l ch a r ac t e r i s t i c s w o u ld a f f e c t

t he p r i c in g s t r a t eg y o f a ho t e l i n In d i a .

The d i s s e r t a t i o n i s i n s p i r ed f ro m th e s t udy o f G eo rg e J . A v l on i t i s

and K o s t i s A . I n d ou na s , D e p a r t men t o f M a r k e t i ng an d

Co mmu n i c a t ion s , A t hens U n ive r s i t y o f E co n o mi c s a n d Bu s in e s s ,

A t hens , G reece w h o hav e ca r r i ed ou t ex t en s i v e r e s ea r ch in t h e a r e a

o f p r i c in g in t h e G r eek s e r v i ce s ec t o r .


6 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

1.3 Dissertation Aim

The a i m o f t h i s r e sea r ch i s t o i nves t i g a t e t he e f f ec t o f ch anges i n

env i r on men t a l ch a ra c t e r i s t i c s on p r i c in g s t r a t eg i e s o f an

o r gan i s a t i o n .

1.4 Dissertation Objectives

T h e o b j e c t i v e s o f t h i s r e s e a r c h a r e :

E x p l o r e t h e en v i r o n men t a l c h a r a c t e r i s t i c s t h a t i n f lu en c e p r i c in g .

To p r o v id e a t h eo re t i ca l f r a mew or k on p r i c in g me th od s an d

p r i c ing p o l i c i e s i n t h e h o t e l i n d u s t r y .

D et e r mi n e w h e th e r h o t e l s c a n r e s p o n d t o ch a n g e i n e n v i r o n me n t

t h r o ug h p r i c in g .

1.5 Scope and Limitation

T h e d i s s e r t a t i o n a t t e mp t s t o ex a mi n e e mp i r i c a l l y t he p o t en t i a l

r e l a t i o n s h ip b e t w een p r i c in g s t r a t eg i e s a nd en v i r o n men t a l

ch a ra c t e r i s t i c s . T h o ug h , a l o t o f i mpo r t anc e i s a t t ach ed to

co mp e t i t i ve i s s u es w h en s e t t i n g p r i c e s , o r g a n i s a t io n s n e e d to t r ea t

t he conce p t o f p r i c ing i n a more “h o l i s t i c ” app roach , whe re apa r t

f r o m co mp e t i t i o n ; e mph a s i s w i l l a l s o b e l a id o n o t h e r

env i ron men t a l l y r e l a t ed ch a rac t e r i s t i c s . The s i gn i f i c ance o f t h es e

f in d ing s n o tw i th s t an d ing , t h e co n t e x t o f t h e s tu d y i s a c a ve a t , s i n c e

i t l i mi t s t he ab i l i t y t o g ene ra l i ze t h e r e s u l t s t o o t h e r co u n t r i e s

o th e r t h a n I n d ian h o t e l i n d u s t r y . Th i s r e s e a r ch i s l i mi t e d to t h e

s t udy o f p r i c ing f r o m th e r o o ms d iv i s io n p o i n t o f v i e w o n l y .


7 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

1.6 Dissertation Structure

T he d i s s e r t a t i o n i s o r g an iz e d a s f o l lo w s : f i r s t , a c o mp r eh e ns iv e

r ev i ew o f t he ex i s t i ng l i t e r a tu re o n p r i c i ng s t r a t eg i e s an d

env i r on men t a l v a r i ab l e s i s p r e s e n ted . S eco nd , t h e r e s e a r ch

me t h o do l o gy us e d i s p r ov id ed . T h i r d , t h e d a t a an a ly s i s an d t h e

in f e r en ce o f r e s u l t s a r e p r e s en t ed , w h i l e , f i n a l ly , t he co n c l us io n s

a lo ng w i t h th e b a s i c i mp l i c a t i on s o f t h e ma i n f in d in g s o f t he s t u dy

and th e d i r e c t i on s f o r f u tu r e r e s e a r ch a r e p r e s e n t ed .

1.7 Conclusion

T h i s cha p t e r d es c r i b es t h e a r e a o f r e s e a r c h w h i ch t h e r e s ea r c h e r

w o u ld l i k e to p u r s ue . I t i s c l e a r l y e v i de n t t h a t p r i c i n g o f p r o du c t s

and s e r v i c es i s o f p a r a mo u n t i mp or t an ce t o a n o r g an i s a t io n . T h e

qu es t io n h e r e i s h ow th ey ge t t h i s c o n c ep t o f p r i c in g r i g h t .

Hav i ng t a lk ed ab o u t t h e i mp or t an ce o f p r i ce i n g en e r a t i ng r ev en u e

and i t s co n t r i b u t io n to t h e lo n g - t e r m su s t a in a b i l i t y o f an

o r gan i s a t io n , t h i s r e s e a r ch w i l l f u r th e r d ec i p h e r t h e co n c ep t o f

p r i c i ng f r o m d i f f e r en t p e r sp ec t iv es an d w i l l a i m t o o p e r a t io n a l i s e

i t s f i n d in g t o t h e r ea l w or ld s cen a r io .

No t e : T h e t e r m o r g an i s a t i o n a nd f i r m h as been u s ed r a nd o m l y i n

t he do cu men t w i t h r e f e ren ce to ho te l s i n t he Ind ian hosp i t a l i t y

s ec to r .


8 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Chapter 2: Review of Literature

2.1 Introduction

On hav in g iden t i f i ed t h e b r oad a r ea o f r e sea r ch an d n a r ro w in g

do w n on t he i s s ue to t h in k ab o u t on , t h i s ch ap t e r a i ms to g a i n

i n s i gh t i n t o t h e i s s u e o f p r i c in g in s e rv i ce i nd u s t ry i . e . h o t e l s , f r o m

the p e r spec t i ve o f d i f f e r en t d i s c ip l i n es .

Rev en u e i s gen e r a l l y r ea l i s ed a nd ea r n e d w h en t he r e i s a

con v in c in g ev i den ce th a t an a r r an g e me n t ex i s t s , d e l iv e ry ha s

oc c u r r e d o r s e r v i c es h a ve b e e n r en d e r ed , t h e s e l l e r s p r i c e t o t h e

b u y e r i s f i x e d o r d e t e r min ab l e a n d c o l l e c t a b i l i t y i s r ea s o n ab ly

a s s u r ed .

2.2 Revenue Management Paradigm

“ R e v e n u e M a n a g e m e n t h a s p r o v e n t o b e a d e v a s t a t i n g l y e f f e c t i v e c o m p e t i t i v e d e v i c e . ”

- D r . A l f r e d K a h n

Rev en u e ma n a g e men t e me r g ed f i r s t f r o m t h e a i r l i n e i nd us t r y . I t

s e rv ed a s a t oo l t o de a l w i t h n ew co mp e t i to r s ( i n va r i ab ly lo w co s t )

and f i e r c e p r i c in g w ar s t h a t r e s u l t ed f r o m d e r eg u l a t io n . C ur r e n t ly

r ev en u e man ag e men t i s a b u s i ne s s p r ac t i c e u s ed by a w ide r a ng e o f

i nd u s t r i e s . Rev e n u e ma n a g e men t i s t h e a r t a n d s c i e n c e o f

f o r e cas t i ng r ea l - t i me cu s to me r d e ma n d an d o p t i mi s e th e p r i c e g i v en

t he av a i l ab i l i t y o f p r od uc t s .

“R evenu e M a na gem en t i s d e f i n ed a s t h e ap p l i ca t io n o f d i s c ip l i n ed

tac t i c s t h a t p r e d ic t co ns u m er b eh a v i ou r a t t h e m i cr o - m a rke t l e v e l

an d op t i m i s e p r od u c t a va i l ab i l i t y a t t he r eq u i s i t e p r i c e to m ax im i s e

re v en u e g r owth .” ( C r o s s , 19 97 , p g 3 2 ) .


9 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Th i s d e f i n i t i o n bu i ld s a b ase f o r s t u dy o f i s sues pe r t a in in g t o

max i mi s i n g r ev en ue e a r n i n g . I t a l s o i n v o l v es r e s e a r c h o f mar k e t s

and co mp e t i t i on , w h i l e d e v e l o p i n g c o r r e c t p r i c i n g s t r a t eg i e s f o r

e ach mar ke t s eg men t . R ev en ue man a g e men t i s a n ew w ay to ma n a g e

su p p ly a nd d e man d . I t e nh an c es r e v e n u e p r o d uc t iv i ty by ach i ev in g

a p r e c i s e u nd e r s t a n d i ng o f t h e d e mand f o r a c o mp an y ’ s p r o du c t s

and s e r v i c es a t t h e mi c r o - mar ke t l ev e l . T h e s mo o th ma n ag e me n t o f

a l l t h r e e p r o ce s s e s r e s u l t s i n r ev e n u e max i mi s a t io n .

Y i e ld M a n ag e men t + P r i c i n g s t r a t e gy + M a r k e t O p t i mi s a t io n =

Rev en u e Max i mi s a t ion .

Rev en u e man ag e men t w as con cep tu a l i s ed to ov e r co me th e n eed t o

equ a l i ze t h e o p po r t un i ty l o s s es p r imar i ly du e to t h e pe r i sh ab l e

na t u r e o f i nv en to r y . O r g an i s a t io n s d e a l in g i n p e r i s h ab l e i n v e n t o ry

ne e d to t ak e a dv an tag e o f s u pp ly an d d e man d co nd i t i on s in t h e

mar k e t t o max i mis e o n t h e r ev en ue gen e r a t ion po ten t i a l b y

tw e ak in g th e p r i c i ng , i . e . i n c r ea s i n g p r i c es w he n d e man d e x c e eds

su p p ly an d v i ce v e r s a . ( K as av an a an d Br o ok s , 19 9 6) .

N y k ie l ( 1 9 9 7) add ed th a t r e v e nu e man ag e men t i s a n e n r i ch ed mi x

o f s t r a t eg i e s t o ma x i mi se r e venu e ba sed o n cu s to mer p e r cep t io n o f

t he co mp e t i to r , p o s i t i o n i ng o f t h e p r od u c t and a s u i t a b l e s t r a t egy t o

ga i n a dv an t ag e f r o m c o r r e sp o nd in g mar ke t co nd i t i on s . B as e d o n

th i s t e ch n i qu e in v e n t o r y man a ger s c an d e c id e w ha t v a lu e c an b e

o f f e r ed t o cus to mer s i n t e r ms o f p r i c e , p r od u c t s o r o th e r i n t an g i b l e

ben e f i t s .


10 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Ro be r t C r os s o n th e o th e r hand h as d es c r ib ed s ev en c o r e con c e p t s

o f r ev en u e ma n a g e men t –

F oc us on p r i c e r a t he r t h an c os t s w h en b a l a nc i ng s u p p l y an d

de man d .

Rep l ace co s t - bas ed p r i c ing w i th mar k e t b as ed p r i c in g .

S e l l t o s e g men t ed mi c r o ma r k e t s , n o t t o mas s mar k e t s .

S av e y o ur p r od uc t s f o r y o ur mo s t v a lu ab l e cu s to mer s .

M ak e d e c i s io ns b a sed o n kn ow l ed g e , no t s up po s i t i on .

Co n t in u a l ly r e - ev a l u a t e y o u r r e v e n u e o p p o r tu n i t i e s .

D o n ag hy e t a l . ( 1 9 97 ) s ay t ha t r e v en u e ma nag e men t i s a t oo l t h a t

he l ps t o i nc r ea s e r evenu e t h r ou g h t he f o r e c a s t ed d i s t r i b u t io n o f

r o o m i nv en to r y to p r ed e t e r mi n ed mar ke t s e g me n t s a t a n op t im u m

pr i ce .

M any au t ho r s p r e s en t a co mp r eh en s iv e v i ew by in t e r p r e t i ng y i e ld

man ag e men t a s an i n s t r u me n t w i th t h e cap ab i l i t y t o g en e ra t e b e t t e r

r ev en u e w i th t h e h e lp o f i n f o r ma t io n sy s t e ms , t e ch n o lo gy ,

p r o f i t ab i l i t y , s t a t i s t i c s , o r gan i s a t i o n t h eo ry , bu s in es s exp e r i en ce

and kn ow l ed g e .

T he ob je c t iv e o f r ev en u e man a g e men t i s t o en s u r e th a t c o mp a n ie s

w i l l s e l l t he r ig h t p r o du c t t o t h e r i gh t cu s to me r a t t h e r ig h t t i me

fo r t he r i g h t p r i c e .

P r i c e d i s c r i mi n a t i on i s t h e t e r m u s ed to d e s c r i b e t he p r a c t i c e o f

s e t t i n g v a r i ab l e p r i c in g po l i c y , an d s e l l i ng th e s a me p r od uc t o r

s e r v i ce t o d i f f e r e n t cu s to mer s a t d i f f e r en t p r i c e s .


11 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

2.3 Pricing from the Perspective of Economics

and Marketing

Fr o m t he ea r l i e r s ec t i o n i t i s c l ea r ly ev id en t t h a t p r i c i ng o f

p r od u c t s an d s e r v i c es i s o f u t mo s t i mp o r t an c e f o r an o r g an i s a t i on ’ s

p r o f i t ab i l i t y an d l on g - t e r m s uc c es s . Rev en u e ma nag emen t l o o k s a t

p r i c i ng f r o m th e p o i n t o f v i ew o f e c on o mi cs ( de ma n d an d s u p p ly )

and mar k e t in g ( an e s s en t i a l co mp o n e n t o f t h e mar k e t in g mi x ) a n d

a ma l ga ma tes t h e e s s en ce o f p r i c ing f r o m b o t h th e d i s c ip l in es t o

f o r m p o w er f u l t oo l s i n - o r d e r t o max i mi s e an o r g an i s a t i o n s r ev en u e

gen e r a t i o n c apa c i ty . N o w l e t u s l oo k a t p r i c in g f r o m th e

pe r s p e c t i ve o f e co no mi cs a nd mar k e t in g .

P r i c ing i s a v i t a l i s s u e b o t h f o r mar k e t ing a n d e c on o m ics . P r i c i n g

a s a co n cep t i s c r i t i c a l f o r o r g an i s a t io n s a n d i t s c o n s u me r s a n d

p l a y s a v i t a l r o l e i n t h e e co no mi c s o f a ny c ou n t r y o r i nd u s t ry .

S k o ur as e t a l . ( 2 00 5) h av e s tu d i ed th e t r an s i t i o na l b as i s o f p r i ce i n

t h r ee d i f f e r en t pe r s pec t i ves . Each o f t he se p e r spec t i v e s have been

d i s cus s ed i n de t a i l .

2.3 .1 Buyers Response to Price

T he p r i m ary d i s t i n g u i s h in g f ac to r o f p r i c in g in e co no mi cs a n d

mar k e t in g i s t h e b uy e r s ’ b eh av i o u r o f r a t i on a l i t y , w he th e r t h e

buy e r can b e co ns i de r ed r a t i on a l o r n o t du r ing a t r an s ac t io n .

E co n o mi c s a s a d i s c ip l in e b e l i e v e s t h a t b u y e r s a r e r a t i o n a l s o t h a t

t he y c an ma x i mi s e u t i l i t y . T h i s i s a l s o in co n s o n a n c e t o t h e u t i l i t y -

max i mi s a t io n th eo ry . T h u s p r i c e i s a d e t e r mi n an t o f t h i s u t i l i t y .

T h i s ma x i mi s a t io n o f u t i l i t y i s d e p en d en t u po n t h e d i s p os a b l e

i nc o me o r p u r ch as in g po w e r o f t h e b uy e r . H ence “buyer s ’ r e sp ons e

to p r i ce s i s , a cco r d ing t o e con o m ics , a n ex er c i s e i n u t i l i t y -

m a x i m i s a t ion un d e r co n s t r a i n t s . ” (S ko ur a s e t . a l . , 20 05 ) .


12 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T he l a w o f d e man d i s d e r iv e d f r o m th i s t he o r y tha t w h en t h e

de man d o f a p r od uc t o r s e r v i ce f a l l s t h e p r i ce r i s e s a nd v i c e v e r s a .

Many theo r i s t s co n t r ad i c t t he l aw o f d e ma nd by p o s i t i n g t h a t i t

d o es n o t n e c e s s i t a t e t h e a s s u mp t i o n o f r a t i o n a l i t y . T h e in v e r s e

r e l a t io n s h ip be tw e en p r i c e an d d e ma nd may be in f e r r e d f r o m

va r io us beh av io u r a l a s s u mp t io ns l i k e h ab i t a nd r a n do m bu y i ng .

T he r e f o r e , e c on o mics lo ok s a t r a t i o n a l bu y e r b eh av i ou r r a th e r t ha n

f o cu s s i ng o n h ow buy e r s behav e in r e a l i t y . T hu s p r i c in g i s t h e mos t

i mp or t an t c r i t e r io n in b u y e r ’ s d ec i s i o n .

T he s u b j e c t o f ma r k e t in g l o o ks a t t h e en t i r e s t o ry f r om a d i f f e r e n t

pe r s p ec t i ve . F i r s t l y i t p r opo s es t h a t t he bu y e r r e l a t e s h ig he r p r i c e

w i th h ig h e r q u a l i t y a s t h ey d o n o t hav e a ny o t he r me th o d to s e c u r e

t he q u a l i t y o f t h e p r od uc t . S eco n d ly , Webe r - Fech ne r ’ s ’ Law s t a t e s

t ha t “ b u y er s t en d to p er c e i v e p r i c e d i f f e r e n c e s i n p r o p o r t io n a l

ra th er t h an i n a bs o lu t e t e r m . ” , Skou r as e t a l . ( 2 00 5 ) . F o r ex a mp l e

i f a bu y e r h as a ch o ic e to c ho os e b e t w e en ,

Cas e A : a $ 10 00 w or d p r o ce s s o r an d a $4 0 0 w or d p r o ce s s o r ,

Cas e B : a $2 0 ,0 00 w o r d p r oces s o r an d a $1 9 , 6 0 0 w o r d p r oces s o r .

T he b uy e r i n c as e A w o u ld go f o r t h e $ 40 0 p r o c es s o r a n d in cas e B

w o u ld go f o r t he $2 0 ,0 00 p r oce s s o r a s t he b uy e r pe r c e iv es a f o r ty

pe r cen t p r i c e d i f f e r ence i n t h e f i r s t c a s e an d a tw o p e rc en t p r i ce

d i f f e r en c e in t h e s eco n d . A cco rd i n g to e co no mi cs t he r a t i o n a l

buy e r w ou ld n o t e xh ib i t a d i f f e r e n c e i n beh a v i o u r i n b o t h th e c as es .

S u r i e t a l . ( 20 04 ) a s c i t ed S ko u r as e t a l . ( 2 00 5 ) have a l so

e mp i r i c a l ly e s t ab l i s h e d t h a t b u y e r o b s e r v e p r i c e s f r o m l e f t t o r i g h t

and t h e i r de c i s io n s a r e b as e d o n th e c a l c u l a t i o n o f p r i c e d i f f e r e nc e ,

f r o m th e d i g i t s o n to t h e l e f t .

T he f ou r t h buy e r r e s po ns e t o p r i c in g , de a l s w i t h th e p r e s en t a t i on o f

p r i ce s t o t h e bu y e r . I t s ay s t ha t b u y er s may a l t e r t h e i r r e f e r e n c e

p r i ce s i n d i f f e r en t s i t u a t i on s .


13 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

When a h igh p r i ce p ro d uc t i s i n t r od u ced i n a p r o du c t l i n e t h en th e

buy e r pe rce iv es t h e o th e r l e s s ex pens iv e p r o du c t s an d w or th w h i l e .

T he f i f t h b uy e r r e s po n se to p r i c e e l a bo r a t e s o n ho w b uy er s r e ac t t o

d i f f e r en t p r i ce s i n t he p r o sp ec t t h eo ry , i . e . “ b u y er s e v a lu a t e p r i c e s

i n t e r m s o f g a in s o r l o s s es r e la t i v e t o t h e i r p r es en t s t a t u s , w i t h a

pa r t i cu la r l o s s b e in g ju d g e d as m o re pa in fu l t ha n a n e qu i v a l e n t

ga in .” ( Sk ou r as e t a l . , 2 00 5 ) F o r ex amp l e N a g le a nd H o l den ( 1 9 95 )

i n t h e i r bo ok i l l u s t r a t e , i f s t a t i on A s e l l s f u e l a t $ 1 . 3 0 p e r ga l lo n

and g iv es $0 .1 0 d i s co un t i f t h e cu s to me r p ay s in c as h , w h i l e s t a t i o n

B s e l l s f ue l a t $ 1 . 20 an d ch a rg es a s u r ch a r ge o f $ 0 . 1 0 w hen a

cus t o mer pay s w i th a c r ed i t c a rd , t h en th e cu s t o mer w ou ld p r e f e r t o

f i l l f u e l f r o m s t a t i o n A .

T he s i x t h ap p r oa ch by a s t a l k s ab ou t a s s i mi l a t i on a nd co n t r a s t

t heo r y i . e . co ns u me r s e i th e r co n t r a s t o r a s s imi l a t e t h e p r i c e l ev e l s

en cou n t e r ed i n th e mar k e t p l ace w i t h th e i r r e f e r en ce p r i c es . F o r

ex a mp le , o f f e r s l i k e ‘ w as R s 1 00 , no w R s 7 0 ’ i s mo r e ap p e a l in g

tha n ‘ w a s R s 1 00 , n ow R s 8 5 ’ .

Marke t i ng ch a l l e nges t h e be l i e f t ha t buy e r s ’ have co mp l e t e

kn ow l edg e a bo u t p r i c es o f f e r ed in t he mar k e t . E mp i r i c a l s tu d y by

M cG ol d r i ck an d M ar k s ( 1 98 7) , a s c i t e d in S ko ur as e t a l . ( 2 0 05 )

p r o v es t h a t co n s u me r s l a ck t h e ab i l i t y t o r eca l l p r i c es o f f r eq uen t l y

pu rchase d p r o du c t s . H ence i t c an b e i n f e r r ed t h a t con s u mer d o n o t

pay a t t e n t io n to p r i c e f o r t ho s e p r o du c t s a nd s e r v i c es t h ey

f r eq uen t l y pu rchase .

Es t e l a mi e t a l . ( 2 00 1 ) a s c i t ed i n S k oura s e t a l . ( 2 00 5 ) ha s

con d u c t e d a me t a - an a ly s i s t o i n ves t ig a t e t h e ma c r o - e con o mi c

f ac to r s t h a t d e t e r mi n e co n s u me r p r i c e k no w led g e an d e s t ab l i s hed

tha t w i th i n c re as e i n G D P g r ow th r a t e and w i th t h e co u r s e o f t i me ,

buy e r s f in d i t d i f f i c u l t t o r e co l l e c t p r i c es o f p r od u c t s o r s e r v i c es .

They have a l s o s t ud i ed t h a t t h e i n t e r e s t r a t e s p r ev a l en t i n t h e

e co no my h as no e f f ec t t o t h e r e co l l e c t i on o f p r i c e by c on s u me r s .


14 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T H E M A R K E T I N G M I X

In mark e t i ng , p r i c i ng n eeds t o p la ced in p e r s pe c t iv e a lo ng w i t h

o th e r c o mp o n en t s o f ma r k e t i ng . D ev e lo p ed b y E . J e r o me M c C ar t hy

the mar k e t i ng mi x ( r e f e r t o f i g u r e 2 . 1 ) i s a t o o l u s ed b y man ag e r s

t o d ev e lo p th e i r ma r k e t in g s t r a t eg y . M an ag er s u s e t h i s mo d e l t o

a t t r a c t t h e i r c l i en t e l e by b l en d in g th e fo u r d i f f e r en t v a r i ab l e s i n an

e f f ec t iv e w ay . M any p r ac t i t i o ne r s ac r o s s t he w or ld be l i ev e th a t t h e

f o u r P mo d e l a s s i s t s man ag e r s t o d e c id e o n t h e p r o d u c t an d i t s

ch a r a c t e r i s t i c s , s e t t he p r i c e , de c id e h ow to d i s t r i bu t e t he i r p r o d u c t

and cho o s e me th o d s o f p r omo t in g t h e i r p r o du c t .

F i g u r e 2 . 1 : F o u r P ’ s o f Ma r k e t i n g M i x .

Ko t l e r e t a l ( 19 9 6) e lu c id a t e s p r i c e a s t h e a mo un t o f mo n ey

ch a r g ed f o r a g o o d o r s e r v i c e i . e . i t i s t h e s u m o f t h e v a l ues

cus t o me r s ex ch an ge f o r t he b en e f i t s o f h av ing o r u s i ng th e p r o du c t

o r s e r v i ce . P r i c i n g d ec i s i on s s h ou ld t ak e i n to ac co un t p r o f i t

ma r g i n s a n d th e p r o b ab l e p r i c i n g r e s p o n s e o f c o mp e t i t o r s .


15 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

P r i c ing i n c l ud es n o t o n ly the l i s t p r i ce , b u t a l s o f i nan c i ng an d

o th e r o p t i o n s s u c h a s :

P r i c in g s t r a t eg y ( sk i m,

pen e t r a t i o n , e t c . )

S ug ge s t ed r e t a i l p r i c e

V ol u me d i s co u n t s an d

w h o le sa l e p r i c i n g

C as h an d e a r ly p ay me n t

d i s co un t s

S eas o n a l p r i c i ng

B un d l in g

P r i ce f l ex ib i l i t y

P r i ce d i s c r i mi n a t i on

E a ch o f t h es e f ou r P ' s i s co n t r o l l ab l e an d i s s ub je c t ed to t h e

i n t e rn a l an d ex t e r n a l con s t r a in t s o f t h e ma r ke t in g en v i ro n men t .

Many r ega rd p r i c e a s an i mpor t an t co mp onen t o f mark e t i ng mi x a s

i t t h e o n ly e l e me n t t h a t g en e r a t e s r e v e n u e , w h i l e t h e o t h e r s

r ep r es en t co s t . N ev er th e l e s s p r i c i ng i s c on t r o l l a b l e i n a n

un r e gu l a t ed mar ke t . P r i c in g sh o u l d b e in h a r mo n y w i th th e o th e r

co mpo n en t s o f t h e mar k e t in g mi x w h ich r equ i r e s a n i n t eg r a t ed

mar k e t in g s t r a t e g y . H en ce , o r g an i s a t i on may c h a r g e a h igh p r i c e i f

t he mark e t i ng t e a m s t r a t eg i z es t o c ap tu r e a n i che marke t .

P r i c i n g a n d p r i c e co mp e t i t i o n a r e v i t a l p r o b l e ms t h a t man ag er s f a c e

du e to a l a ck o f u nd e r s t an d i ng w he n c o mp a r ed to o th e r c o mpo n e n t s

o f mar k e t ing mi x . O f t en ma n a g er s c ha ng e the i r p r i c es t oo f a s t

w i th ou t p ro pe r ana ly s i s o f t h e s i t u a t i o n . S o me t i me s p r i ces a r e

ex t r e me l y c o s t o r i en t e d a n d d o n o t t ak e i n t o co n s i d e r a t i o n t h e

marke t s c ena r io , wh i l e so me t i me p r i c es a r e ex t r e me ly mark e t

d r iv en an d d o no t t ak e mar k e t i n to con s id e ra t i o n . A n o r gan i s a t i o n

can f a i l i n i t s l o ng - t e r m s us t a in ab i l i t y i f t h e p r i c in g s t r a t eg y

ado p t ed i s n o t r i gh t . M a ny au tho r s a dd th a t ma r k e t in g h as de l v e d

in t o p s y ch o lo gy so a s t o g a i n i n s i gh t i n to h o w b uy e r s p e r c e iv e an d

ev a lu a t e p r i c es .


16 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Given be lo w a r e t h e e mp i r i ca l r e su l t s on p r i c in g r e sea r ch ca r r i ed

ou t by va r io us au tho r s some o f w h ich a r e c i t ed i n S ko u ra s e t a l .

( 2 00 5 ) .

Co u l t e r ( 2 00 1) , Es t e l a mi ( 1 99 9) , G en d a l l e t a l . ( 1 9 97 ) an d

G en da l l ( 19 98 ) : C on s u me r s p r e f e r od d p r i s e s ( Rs 1 9 9) t h an ev e n

p r i c e s (Rs 200 ) .

F ear ne e t a l . ( 19 9 9) , K en d r i ck ( 19 9 8 ) , M ad an an d S u r i ( 20 0 1) ,

M cG o ld r i c k e t a l . ( 2 00 0) : P r i c e p ro mo t i on s s uch a s p r i c e

d i s cou n t s a nd c ou po n s an d t h e i r e f f ec t iv en es s o n s a l e s .

H s u an d L iu ( 1 99 8 ) : M o od s p l ay a r o l e i n p r i c e p r o mo t io n s .

M ax w el l ( 19 9 9) : P r i ce i n c r e as e i s p e r ce i v ed d i f f e r e n t ly by

gend e r an d cu l tu r a l d i f f e r en ces .

H ub er e t a l . ( 2 0 01 ) : B uy er s s a t i s f a c t ion d ep end s o n t h e

a cc ep t an c e l ev e l o f p r i c e a s f a i r .

M ar k e t in g h as ad o p ted v a r iou s f a c t s an d n o t i on o f p r i c i ng f r o m

e co no mi c s . T he d i f f e r en c e b e tw e en e co no mi c co n c ep t o f p r i c in g

and mar ke t in g con cep t o f p r i c in g i s t ha t econ o mics bas e s i t s

r e s e a r c h o n s t a t i s t i c a l d a t a o f mar k e t t r an s ac t i o n s ; w h i l e ma r k e t i n g

has o pen ed i t s e l f t o i n s igh t s f ro m emp i r i ca l da t a an d p sy cho lo gy .

M ar k e t in g t ak es up a beh av io u r i s t ap p r o ac h to p r i c in g , w h i c h i s

p r ac t i c a l , f un c t ion a l an d e l a s t i c , wh er e a s e co no mi cs i s s tu ck to i t s

p r in c ip l e o f u t i l i t y - ma x i mis a t i on w h ich n o t b a s ed o n emp i r i ca l d a t a

f r o m p s y c ho lo gy .

2.3 .2 Hote ls Determinat ion of Prices

I n a dy nami c ma r k e t , o r g an i s a t ion s h av e b e e n a ccu s e d o f ad op t in g

p r i c i ng f r o m b o t h mar k e t in g an d e c o n o mi c p e r sp e c t iv e . O n r ev iew

o f e co no mi c l i t e r a t u r e o n e c an d ed uc e th a t f o r ma l mo d e l s s e e k

p r i c i n g t o y i e l d t h e o p t i mu m o r max i mu m r es u l t . T h ey f u r th e r

e l ab o r a t e t h a t a s p e r e c o n o mi c t h eo r i e s , t h e p r i mary a i m o f

o r gan i s a t i o ns i s t o max i mi s e on p r o f i t .


17 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

P r i c e i s a l s o de t e r mi n ed b y d i f f e r en t fo r ms o f co mp e t i t i on :

a ) P er f ec t C o mp e t i t i o n

b ) I mp e r f e c t C o mp e t i t i o n

T h e c o n cep t o f i mp er f ec t c o mpe t i t i o n i s d e s c r i b e d ex t en s iv e ly b y

an E n g l i s h e con o mi s t J oa n R ob in s on ( 1 90 3 – 1 9 83 ) i n h e r w or k

“Th e E co n o mi cs o f I mp er f ec t Co mp e t i t i o n ” . A c c o r d i n g t o e c o n o mi c

the o r i e s i mp er f e c t co mp e t i t i on i s a ma r k e t s i t u a t i o n t h a t d i s p l ay s

ch a ra c t e r i s t i c s d i f f e r en t f r o m ma rke t s i t u a t i on t ha t o f pe r f ec t

co mp e t i t i on . P e r fe c t co m p e t i t i on a s opposed t o i mper f ec t

co mp e t i t i on h as t h e f o l lo w i ng ch a ra c t e r i s t i c s :

1 . Lar g e N u mb er o f Buy e r an d S e l l e r w h er e n o s in g l e s e l l e r h as th e

c ap ab i l i t y t o i n f lu e n c e t h e ma r k e t p r i c e b y v a r y in g r e sp e c t i ve ly

h i s s u p p l y an d ,

2 . H o mog en ou s P r o du c t i . e . t h e p r o du c t s an d s e r v i c es p r od uced by

d i f f e r en t o r g an i s a t io ns sh o u l d be s t a n d a r d i s e d o r i de n t i c a l .

3 . P er f ec t K n ow l ed ge : t h e b uy e r s an d s e l l e r s a r e aw a re o f t h e

p r i ce s t h a t a r e be in g o f f e r ed i n t h e mar k e t .

4 . A b s e n c e o f T r a n s p o r t a t i o n C o s t s : I f t h e t r a n s p o r t a t io n c o s t

f e a tu r e s , t he n p r i c es w o u ld d i f f e r i n d i f f e r en t s ec to r s o f mar k e t .

5 . P er f ec t M o b i l i t y o f t h e f ac t o r s o f P ro d uc t io n : I t i s e s s en t i a l t o

en ab l e th e o rg an i s a t io n and th e in du s t ry to a t t a in a b a l an ce b y

ad ju s t in g th e s u p p ly t o de man d .

Un le s s a l l t h e men t io n ed c r i t e r i a a r e fu l f i l l ed , i t l e ad s t o i mp e r f ec t

co mp e t i t i on i n t h e mar k e t . I mp er fec t co mp e t i t i on can a l s o o ccu r

du e to a t i me l ag in a m ar ke t . F o r ex a mp l e th e r e a r e p l en ty o f

g r ow th opp or tu n i t i e s av a i l ab l e a f t e r a r eces s io n . I t t ak e s t h e

e mp lo y ees a w h i l e t o r e a c t , l e a d i ng to h i gh u ne mp l oy me n t . H i g h

un e mp lo y me n t de c r e as es w ag es , w h i ch mak es h i r in g mo r e

a t t r ac t i v e , bu t i t w ou ld t ak e t i me f o r n ew jo bs t o b e c r e a t ed .


18 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

I mp er f e c t co mp e t i t i on c an t a k e v a r i e d f o r ms a s s een b e lo w :

F i g u r e 2 . 2 : F o rm s o f Im p e r f e c t C omp e t i t i o n .

T h e s u b j e c t o f i m p er f ec t c o mpe t i t i o n b r in g s ab o u t s e v e r a l i s s u es

r eg a r d i ng p r i c in g po l i c i e s o f i mp er f ec t l y co mp e t i t i v e

o r gan i s a t io ns . P r ic i ng u nd e r p e r f e c t co mp e t i t i on a nd p r i c in g u n d e r

i mp er f e c t c o mp e t i t i o n h as s i g n i f i c a n t d i f f e r en c es .

M O N O P O L Y

M on op o ly i s de f ined a s t h e mar k e t f o r m i n w h i ch a s i ng le p r od uc e r

con t r o l s t h e w ho l e s up p l y o f a s i n g le co mmo d i ty w h ich h as n o

c lo s e s u bs t i t u t e s . M on op o ly i s t h u s ch a r ac t e r i s ed b y a l ack o f

e cono mic co mp e t i t i on fo r t he good o r s e r v i c e i n t h e mar k e t ( i . e .

on ly on e s e l l e r a nd th e s e l l e r ma y be an i nd iv id ua l , a f i r m o f

pa r tn e r s o r a j o in t s t o ck c o mpany ) an d th a t t h e r e i s n o th r ea t o f

su b s t i t u t i o n f ro m o t he r o r b e t t e r p ro d uc t s .

U n d er mo no p o ly th e d i s t i n c t io n b e t w een th e f i r m an d th e in d u s t r y

d i s a pp e a r s . I n co n t r a s t w i t h p e r f ec t co mp e t i t i on where no s i ng l e

s e l l e r h a s t h e p o w er to i n f lu en ce t he p r i ce o f h i s commo d i ty by

ch a ng in g h i s ow n s up p ly , i n mo n o po ly t he mo n o p o l i s t c a n

in f lu en c e th e p r i c e . I n mo no p o ly the mon o p o l i s t s e t s t h e p r i c e i n

t he mark e t .


19 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T he mo n o po l i s t i s i n co mp l e t e c on t r o l o f t h e s u pp ly o f h i s p r o d u c t

i n t h e ma r ke t and h en ce th e mo no po l i s t c an s e t p r i c e s i n tw o w ay s

1 . Th e mon o po l i s t c an f i x t he p r i c e an d o f f e r t o su pp ly t he q uan t i t y

de man d e d a t t h a t p r i c e o r

2 . Th e mon op o l i s t c an f i x t h e s up p l y and th en l e t t h e p r i ce b e

de t e r mi n ed b y th e de man d o f h i s p r o du c t i n t h e mar k e t .

I n t e r e s t i n g ly , mo n op o l y p r i c e i s no t n ec es s a r i l y t h e h ig he s t p r i c e .

D u e to t h e ab s en c e o f co mp e t i t i on th e mo no p o l i s t do es no t h av e t o

i nv es t i n ad ve r t i s i ng an d hence th i s co s t i s r u l ed o u t . Th e

mo n o po l i s t ga i ns f ro m t h e e co no mi c co nd i t i on a s i t r e s u l t s i n l a r g e

sc a l e p r od uc t io n . T h i s f o r m o f ma r k e t a l so ensu re s t ha t t h e s e l l e r

c an d e ma n d h i s p r i c e f o r t h e p r o du c t ( t h e s e l l e r c an p r ac t i c e an

ind ep en d e n t p r i c e o u t pu t po l i c y ) an d th a t t h e s e l l e r d oe s n o t

un de rg o p r i c e p r e s su r e f r om c o mp e t i t i o n . “ P o wer to i n f l u en ce p r i c e

i s t h e e s s en ce o f m o n op o l y” , D ew e t t a nd V ar m a (2 00 5 ) .

O L I G O P O L Y

Ol ig op o l y i s de r iv ed f ro m t he G reek w o r ds ‘ O l ig ’ an d ‘ p o ly ’ w h ich

s t and fo r ‘ a f ew’ and ‘ s e l l e r s ’ r e s p e c t i v e l y . O l i g o p o l y i s a ma r k e t

fo r m w h e re th e r e a r e a f ew s e l l e r s . H en ce , e ach s e l l e r i s aw ar e o f

t he ac t io ns o f t he o the r s e l l e r s . Th e de c i s io n s o f on e f i r m pe r s u ad e ,

and a r e i n f lu en c ed by th e de c i s io ns o f o th e r f i r ms .

P r i c ing i n o l ig op o l y depend s o n th e f o l lo w in g ch a r ac t e r i s t i c s :

1 . I n t e r d ep e n d en ce : S i n c e t h e r e a r e a f e w s e l l e r s i n t h e m ar k e t t h e

p r i c e o u t p u t d ec i s i on o f on e s e l l e r i s t ak e s i n to co ns i d e r a t i on b y

o t he r s e l l e r s w h ich in f l uen c e s th e i r d e c i s io n mak in g o n p r i c ing .

2 . I n t e r me d i a t e d e ma n d cu r ve : N o s e l l e r c an b e c e r t a in a bo u t t h e

qu an t i t y o f p r od u c t h e c an s e l l a t a p r i c e , a s i n t h i s ma r k e t f o r m

i t i s d i f f i cu l t t o p r ed i c t t he b e hav io u r o f o th e r s e l l e r s o n t he

p r i c e o u t pu t d e c i s i on , l e ad i ng to u nc e r t a in ty . T h us th e de man d

cu rv e i s i n t e r med i a t e .


20 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

3 . H ig h P re s s u r e S a l e s man sh i p : Th e s e l l e r i n t h e mark e t i n v es t s i n

adve r t i s e men t t o c ap tu r e t he marke t e f f ec t i ve l y a s t he r e a r e

o t he r s e l l e r s p r e s e n t i n t h e mar k e t . T h u s t he o th e r s e l l e r s a l s o

d i sp l ay a t end en cy t o i nc r ease t h e i r s e l l i ng cos t a s a coun t e r

c a mp a i g n meas u r e , a f f e c t i n g t h e i r p r i c i n g d ec i s i o n .

4 . S t i cky P r i c e s : T h e s e l l e r s i n t he mar k e t d o n o t i n d u lg e i n

ch an g in g th e p r i c e o f t h e i r co mmo d i ty a s i t w i l l av o i d

un f avo u r a b l e r e s p o ns e f r o m c o m pe t i to r s . H en ce t he r e i s

co mp ara t iv e p r i ce s t ab i l i t y i n an o l ig op o ly ma rk e t .

F r o m t h e ab o v e c h a r a c t e r i s t i c s o f o l ig o po ly i t c a n b e in f e r r ed th a t

no s i ng le p r i ce o u tp u t de c i s io n i s p os s ib l e a s t he d e c i s ion o f on e

se l l e r a f f ec t s t h e p r i c e d ec i s i on o f t h e o th e r s . S t r a t eg i c p l an n i ng b y

o l i go po l i s t s a lw a y s i nv o l ve s t ak i n g in to acco u n t t h e l i ke ly

r e s p o ns es o f t h e o t h e r ma r k e t p a r t i c i pa n t s . T h i s c a us es

o l i go po l i s t i c mar k e t s an d i nd us t r i e s t o be a t t he h ig h es t r i s k fo r

co mp l i c i t y .

M O N O P O L I S T I C CO M P E T I T I O N

In t h e r ea l w o r ld mo no po ly an d p e r f e c t co mp e t i t i on r a r e ly ex i s t . I n

gen e ra l t he r e a r e a l a rge nu mb er o f s e l l e r s / p roduce r s bu t no t a s

l a r g e in t he c as e o f pe r f ec t co mp e t i t i on . S e co nd ly th e p r o du c t s

p r od u ced by t he f i r ms a r e no t h o mo g eno u s i . e . t h ey a r e

d i f f e r en t i a t ed by t h e mean s o f d i f f e r en t l ab e l s and b r an ds . Bo th

t he s e abo ve ch a r ac t e r i s t i c s o f p r e s en t day mar ke t d o no t f u l f i l t h e

con d i t i o n s f o r mo n o p o ly o r p e r f e c t co mp e t i t i o n . I t i s mo n o p o l i s t i c

be c au s e e a ch b r an d in i t s e l f i s a d i f f e r en t p r o d uc t a n d i s p r o d uc e d

by a s in g l e f i r m; t h e r e i s c o mp e t i t i o n a mo n g d i f f e r en t f i r ms w h o

p r od u ce s i mi l a r p r o d uc t s ; an d i t i s i mp er f ec t a s p r i c e s a r e

i n f l uen ced by t he ac t ions o f d i f f e r en t f i r ms i n t he mark e t .


21 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

The cha r ac t e r i s t i c s o f "mon opo l i s t i c co mp e t i t i on" a r e :

M an y b u y er s an d s e l l e r s ( n o t a s l a r g e a s p e r f e c t co mp e t i t i o n )

D if f e r en t i a t ed p ro d uc t s

S uf f i c i e n t k no w l e d g e o f t h e mar k e t i . e . p r o d uc e r s h av e a deg r e e

co n t r o l o v e r p r i c e .

Th er e a r e f ew b a r r i e r s t o e n t ry a nd e x i t .

M o n o p o l i s t i c ma r k e t s i n c l u d e f i r ms l i k e r e s t au r an t s , c e r ea l ,

c lo th in g , s h o e s and s e r v i c e in d u s t r i e s i n l a r g e c i t i e s . F r o m t h e

w o r ks o f D e w et t an d V ar ma ( 20 0 5 ) i t c an b e i n f e r r e d th a t , g iv en

tha t co mp e t i t i o n i s i mp er f e c t a n d p r i c e o f p r o d u c t s v a r i e s i n t h e

mar k e t i . e . t h e ma rk e t i s s p l i t i n to d i f f e r en t s eg me n t s w h er e ea ch

p roduc t exce l s a nd a t t r a c t s i t s o wn c l i en t e l e . E ac h o f t h e s e

seg me n t s d i s p l ay s mo no p o ly an d ac co r d in g l y th e p r i c e f o r t h e

p r od u c t i s d e t e r mi ne d . T h e d e man d f o r e a ch go o d i s n o t p e r f ec t ly

e l a s t i c . M o n op o l i s t i c f i r ms co mma nd b r an d l oy a l t y an d t he r e f o r e

a r e n o t p r i c e - t ak e r s . U n d er t h i s f o r m o f co mp e t i t i on , t o t a l p r o du c t

equ a l s t h e s u m o f ma r g in a l cos t an d marg in a l r evenu e .

H a l l an d H i t ch ( 1 9 3 9) a s c i t ed in S ko ur as e t a l . ( 2 0 0 5 ) p r es e n t a

con t r a r y v i e w th r o u gh th e i r r e s ea r ch t ha t o r g a n i s a t io n d o n o t t a r g e t

p r o f i t max i mi s a t i o n n o r d o th ey b as e th e i r p r i ce on mar g i n a l

an a ly s i s . T h i s l ed t h e m t o d ev e l o p th e t h e o r y u s i n g f u l l - c o s t

p r i c i ng a pp r o ac h t o s e t t he i r p r i ces . T ak i ng th i s f u r th e r A n d re w

( 1 94 9 ) a l s o c i t e d in S ko ur as e t a l . ( 2 0 05 ) dev e lop ed n o r ma l - c os t

p r i c i ng i . e . p r i ce s i s b as ed o n ly o n va r i ab l e co s t s a t t he t a rg e t ed o r

no r ma l l e v e l o f cap a c i ty u t i l i z a t i on .


22 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T hu s an o r g an i s a t i on s p r i c i n g i s p r ima r i l y d ep en d e n t on p r o ces s es

by w h i ch p r i c es a r e d e t e r mi n ed an d b eh av i ou r a l ex a mi n a t io n o f

i s s ue s s u ch a s p r i c in g o b j e c t iv e s , p r i c in g me tho d s f o l lo w ed ( i . e .

cos t -b as ed , de ma n d- b as ed an d co mp e t i t i on - based ) , t h e p r i c in g

po l i c i e s a do p t ed ( i . e . l i s t p r i c in g , n e g o t i a t ed p r i c in g , g eo gr ap h i c a l

p r i c i ng , p r i c e bu nd l in g e t c . ) , f ac to r s t h a t a f f ec t p r i c i ng ( s e rv i c e ,

o r gan i s a t i o na l and env i r on men ta l ) a n d the d e p a r t men t s r e s p on s ib l e

f o r p r i c in g de c i s io n r e l a t e d t o p r i c in g o f e x i s t i ng a nd n e w p r o du c t s

and th e ex a mi n a t i o n o f t h e h ea l t h o f t h e co mp any i n g ene r a l t o

de t e r min e an i n c r ease o r dec r e ase i n p r i c e .

S k o ur as e t a l . ( 2 0 05 ) d r aw s a p a r a l l e l b e t w een in t h e f i e ld s o f

e co no mi c s an d mar k e t i ng . E co no mics c on s i d e r s p r i c in g t o t h e

e s s en ce o f b u s in es s d ec i s io n i n - o r d e r f o r p r o f i t max i mi s a t i o n ,

wh i l e mark e t ing r eg a r ds p r i c i ng a s i mp o r t an t a s t he o th e r

co mpo n en t s o f t h e mar k e t in g mi x an d i s b ehav iou r i s t i n ap p ro ach .

E co no mi c s i s s u pp o r t ed b y th e f a c t t h a t t h e r e i s n o d i s c r ep an c y

be t w een gen e r a l e q u i l i b r iu m t h e o r y an d f i r ms ’ d e t e r mi n a t io n o f

p r i ce s ex cep t on t he b as i s o f p r o f i t ma x i mi s a t i on .

2.3 .2 Industry and Economy Wide Role Process

In du s t ry an d E con o my w id e p r oc es s i s o f g r ea t s i g n i f i can c e t o

e co no mi c s and h as no p a r t t o p l ay in ma r k e t in g . T he r e a r e a n u mb er

o f v i t a l q u es t io n s t h a t h a v e f o r me d e co no mi c r e s e a r c h .

The ques t i on t h a t a r i s e s a t t he s e c to r l ev e l i s r eg a r d i n g s t r uc t u r a l

ch a r a c t e r i s t i c s , t h e in t en s i t y o f co mp e t i t i o n i n t h e mar k e t an d h ow

the co mp e t i t i on i f p e r f o r mi n g , S k o ur as e t a l . ( 2 00 5 ) . I n t h e 19 3 0 ’ s

and 1 95 0 ’ s A me r i c an e co n o mi s t s mad e i m me n s e co n t r i bu t io n t o t h e

f i e ld o f e c on o mics b y de f in in g a s ep a r a t e b r a n ch kn o wn a s

i nd u s t r i a l e co no mi cs , t h e f ou n da t io ns o f w h ich h ad b een l a id by

M ar s h a l l ( 19 2 0) .


23 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T he ma in co n c ep t s o f I n du s t r i a l e c o n o mi cs a r e e c o n o mi es o f s ca l e ,

ba r r i e r s t o en t ry o r ex i t f r o m a ma rk e t , g ov e r n men t a l i n t e rv en t i o n

t h r o ug h p r i ce an d o th e r c on t r o l s , ve r t i c a l i n t e g r a t i on ,

d iv e r s i f i c a t ion , p r od u c t d i f f e r en t i a t i o n a nd d i f f e r en t f o r ms o f p r i c e

co mp e t i t i on in o l i go po l i s t i c mar k e t s i t ua t io ns , M cG e e ( 19 8 8) ,

S c he r e r ( 1 98 0 ) , T i r o l e ( 19 8 9) a s c i t ed in S ko u r a s e t a l . ( 20 0 5) .

U n d er t h i s i nd us t r i a l o r g an i s a t i on a p p r o ac h p r i c in g i s d e t e r mi n e d

on th e u n de r s t a nd in g o f h ow th e n a tu r e o f co mp e t i t i on a f f e c t s

p r i c i ng b eh av io u r an d i s n o t ev a lu a t e d a t an o r gan i s a t io n l ev e l .

T he eco n o my - w ide l ev e l c on s i s t s o f t w o a pp r o a c h es ; g e n e r a l

equ i l i b r i u m an a ly s i s an d mac r oe co no mi cs . I n g en e ra l eq u i l i b r i u m

an a ly s i s p r i c e s a r e d e t e r mi n ed a f t e r t he eq u i l i b r iu m p r i c e i s s e t .

Tho u gh t h i s co n c ep t r e mo te l y ex i s t s i t con s i s t s o f n eo c l a s s i ca l

e co no mi c s . M acr o e co no mi c s i s e mp i r i c a l ly o r i en t e d w h er e t h e

de t e r mi n a t io n o f p r i c e t ak es p l a c e t ak in g i n to c on s id e ra t io n

con s u mp t io n , i n v e s t me n t , t h e r a t e o f i n t e r e s t , i n co me an d

e mp lo y men t . M a cr oe co no mi c s an d g en e r a l e qu i l i b r iu m t h e or y

r e s e mb l e each o th e r w i th t he ex c ep t io n th a t t h e p r i ma ry v a r i ab l e s

a r e d i f f e r en t .

G e ne r a l eq u i l i b r i u m th eo r y co n s i s t s o f mi c r o ec on o m ics s u ch a s

u t i l i t y - max i mi s a t i o n co n s u me r s an d p r o f i t max i mi s i ng o r gan i s a t io n

un de r p e r f ec t c o mp e t i t i o n , w h i l e ma c r o eco no mi cs i s c on ce r n e d

wi th e mp i r i ca l l y ob s e r vab l e co u n t e rp a r t s . Th e p r i c in g s y s t e m un d er

t he s e t w o ap p r oa ch es i s e mp i r i c a l ly no t o b s e r v ab l e .

M ark e t in g h as no th in g to ch ip i n t o t h e i s s ue o f i n du s t r y an d

e co no my w id e r o l e o f p r i c in g w he r e a s econ o mi c s h as i t s t h eo r i e s

c en t e r ed o n th e i s s ue o f p r i c e d e t e r mi na t io n .


24 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

A s men t i o ned by S ko u r as e t a l . ( 20 0 5) t ha t ma r k e t in g a s a s t udy

o r ig ina t e d o u t o f b us in es s c on ce r n t o a l i gn ma n a g e men t w i t h t h e

mar k e t an d i t s ch i e f a i m i s t o enh an ce bu s in e s s pe r f o r man ce , w h er e

a s e co n o mi c s o r i g in a t e s f r o m p o l i t i c a l p h i l o s o p h y an d s t r i v e s t o

t he o r gan i s a t io n o f s oc i e ty . T h us , ma r k e t i ng i s a d i s c i p l i n e

con ce r n ed w i th bu s ine s s p r ac t i c e w h i l e e co n o mi c s i s e s s en t i a l l y a

so c i a l s c i en ce d i s c ip l in e .

A s c i t ed in A v l on i t i s a nd I n do u na s ( 2 00 6) , “pr i ce m a na gem en t i s a

c r i t i ca l e l emen t i n marke t i ng an d c o m p e t i t i v e s t r a t e g y a n d a k e y

de t e rm in an t o f pe r fo rm a n ce . P r i ce i s t h e m ea s ur e by w h i ch

cus t om er s j ud g e t h e v a l u e o f an o f f e r ing a n d i t s t r o ng ly im pa c t s

b r a nd s e l e c t io n am o n g co m pe t in g a l t e r n a t i v es . ” ( S h i p l e y an d

Job b er 2 0 01 )

2.4 Bargaining Theory of Pricing

There ex i s t s mo re t han one p r i c e fo r a p r od uc t i n t h e mar ke t du e t o

ba r g a in in g . T h i s d i f f e r en ce in p r i c in g i s b e p r e se n t no t o n l y d ue t o

co mp e t i t o r s b u t i s a l s o cau s ed by s e l l e r s i n t h e mark e t w ho ch a rg e

who ch a r ges d i f f e r en t p r i c e s . Moy er (1 97 1 ) po in t s o u t t h a t t h e s e

c i r cu ms ta n c es a r e o p p o s i t e t h e t r ad i t i o n a l p r i c i n g th eo ry ( p e r f ec t

co mp e t i t i on ) t h a t t he p r e s en ce o f mor e t h an on e p r i c e in th e mark e t

i s no t p os s ib l e . Th i s s i t u a t i on i s c r ea t ed d ue to t he u n w i l l i ng n es s

o f r a t i o n a l b u y e r s t o p ay mo r e th an th e p r ev a i l i n g p r i c e i n t h e

abs en ce o f ex t r ao r d in a r y c i r cu ms tan ces ( fo r ex a mp l e co e r c io n ) .

I n o u r da i ly l i f e w e h av e e xp e r i e n c ed th a t d i f f e r en t p r i ce s a r e

be i ng c ha r g ed f o r a p r o du c t o f s e r v i ce du e to b a r g a i n in g . A w a lk - i n

gu es t i s u s u a l ly a s k ed to p a y a t t h e r ac k r a t e f o r h i s s t ay w h i l e a

co rpo ra t e gues t i s cha rg ed a d i f f e r en t r a t e ( co rpo ra t e r a t e ) a s h i s

co mp any h as a con t r ac t ed r a t e w i th t h e ho te l . Th i s h ap pens du e t o

ba r g a in in g po w er o f t h e bu y e r .


25 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

S i mi l a r l y man y o th e r s eg men t o f gu es t s a r e c ha r g ed d i f f e r en t ly d u e

to t h e i r i nd iv id ua l b a r g a i n in g p o w er , t r a v e l ag e n t s ba r g a in in g

po w er , ba r g a in in g p o w er o f g r o u ps a nd MI C E . M os t de l ib e r a t e

p r i ce d i s c r i mi n a t ion s ch e mes f a l l i n to t h i s ca t ego ry . Th e

man ag e men t s eek o u t t o c r ea t e d i f f e r en t ma rke t s be tween wh ich t h e

se rv i ce i s a l mos t n on - t r ans f e rab l e . H en ce , w h a t ap p ea r s t o be

d i f f e r e n t p r i c es i n a s in g l e ma r k e t i s i n f a c t i n d iv i d ua l p r i c es i n

d i f f e r en t ma rk e t s eg men t s .

M oy er ( 19 7 1) f u r th e r e l a b o r a t e s t ha t f o r i d en t i c a l p r od uc t s i n

i mp er f e c t ma r k e t s o t he r f a c to r s s u ch a s i mp er f e c t k no w led g e ,

i nd i f f e r e n c e to t h e av a i l a b i l i t y o f l o w er o r h ig h e r p r i c e s , adv a n ta g e

du e to l oc a t io n a r e t h e c au s es t o c h a r g in g d i f f e r e n t p r i c e s . H e

s t a t e s t h a t i t i s an o r g an i s a t io n ’ s l a c k o f p o w er to a f f e c t p r i c es t h a t

g iv es w a y t o ba r g a in in g p ow e r o f t h e bu y e r a s i n c a s e o f h o te l

i nd u s t ry i n S r i Lan ka w h er e t ha t t r av e l ag en t s d o mi n a t e t he l o dg in g

ind u s t ry by p r o v id in g ho t e l s w i th b u s i nes s a t a r a t e f ea s ib l e t o

t he m d u e to t h e p o l i t i c a l i n s t a b i l i t y o f t h e co u n t r y . H e a l s o

e l abo ra t e s on t he f ac t t ha t i n pe r f ec t l y co mp e t i t i ve marke t no

o r gan i s a t io n i s c o mma nd i n g en ou gh to i n f lu en c e p r i ce i n a n

ob v i ou s man n e r . W h er e as o n t h e o t h e r hand a mo n o p o l i s t av o ids

ba r g a in in g a s h i s ma r k e t p os i t i o n mak e s h i m ex t r e me l y po w er f u l

and h e can d o wi t h ou t i t . Th e mo n op o l i s t i s t h e s o l e s e l l e r i n t h e

marke t and t he buy e r s a r e co mp e l l ed t o a ccep t h i s p r i c e .

T he co n c ep t o f b a r g a in in g p e r s i s t s i n a l l t y pes o f ma r k e t s su ch a s

o l i go po ly , mon op o l i s t i c a l l y co mp e t i t i v e b u t t h e q ue s t io n n ow

a r i s e s a s t o w h a t d e t e r mi n es b a rg a i n i n g p ow er .

T h e d e t e r mi n a n t s o f b a r g a in i n g p o w er a r e l i s t e d a s f o l l o w s :

1 . M ar ke t s t r u c tu r e : I t i n v o lv e s t h e nu mb er a nd s i z e o f b uy e r s an d

s e l l e r s . T he b a r ga i n ing p ow er o f t h e s e l l e r s i s w ea k w h e n man y

s e l l e r s a r e p r e s e n t i n th e mark e t a s t h e co ns u mer h as t h e

a l t e rna t i ve t o app r oach ano t he r s e l l e r .


26 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Wh en th e mark e t co ns i s t s o f f ew b uy er s t h en t h e s e l l e r a r e

p r o f o un d ly d ep en d en t o n th e m f o r b e n e f a c t ion . I n t h i s c as e a l s o

th e b a r g a i n in g p o w er o f buy e r p r es id es o v e r t h e ba r g a in in g

p o w er o f s e l l e r s .

2 . A v a i l ab i l i t y o f c lo s e s u b s t i t u t e s : C o mp e t i t i o n i n t h e mar k e t c an

t ak e p l ace d i r ec t l y o r i nd i r e c t l y . Se l l e r s who se l l c l o se

sub s t i t u t e o f p r odu c t s a r ea s ma l l s t ep aw ay f ro m b e ing d i r ec t

co mp e t i t o r s . S u bs t i t u t io n o f an e x i s t i n g p r od uc t i s o f t en a n

ou tco me o f ch ang es in p r o du c t i on p ro ce s s e s an d th r o u gh d es ig n

ch an ges o r be c au s e s ub s t i t u t ion b r i n g ab ou t p r o f i t ab i l i t y i n t h e

s ho r t r un . I n b o th t h e c as e s s u b s t i t u t e p r od u c t c on ce r n bu y e r s

an d s e l l e r s a nd h av e a n e f f ec t o n ba r g a in in g po s i t i o n s e i th e r

ex p l i c i t l y o r i mp l i c i t l y .

3 . L ev e l an d t r en d o f de man d : B uy er s b a r ga in in g p ow e r i s

w eak en ed w h en th e se l l e r s d e mand f o r a p ro d uc t i n c r eas es . T h e

s e l l e r b e ne f i t s b y n a r r ow in g o f ope r a t in g r a t e s w h i ch us u a l ly

f o l lo w s in c r e as ed d e man d . I n t h i s s i t u a t i o n a s e l l e r mi g h t

r e in fo rce h i s b a rg a in in g p o s i t i o n by in c r eas in g t h e s po t d e l iv e ry

p r i c e o r h e may c ap tu r e n ew b us in e s s f r o m t r o ub le d b uy e r s w ho

ev ad ed h i m in th e pa s t .

4 . P er i s h a b i l i t y : A s i n c as e o f h o te l s a r o o m w h ich i s u n so ld o n

an y p a r t i cu l a r n ig h t c an no t b e s to ck ed to s u b se qu en t ly o f f e r t o

g u es t s a t a l a t e r s t a g e . H en ce t h e co n s u me r c a n t a k e a d v a n t a g e

o f t h i s f a c t t h a t i n c a se o f l o w d e ma n d t h e o r g an i s a t i o n i s

co ns t r a i n ed to ma k e p r i c e d ed u c t io n w i t ho u t d u r es s .

5 . F in an c i a l r e s o u r ce s o f t h e p a r t i c ip an t s : I n t i mes o f f i n an c i a l

c r i s i s t he buy e r a t t a i n s t ha t ba rga in i ng power a s a s e l l e r wou ld

no t w an t t o l o s e o u t o n b u s ines s w hen th e b u s ines s i s t o ug h to

s ecu r e a n d t h e o r g an i s a t i o n s f u t u r e i s u n ce r t a i n .

6 . Barg a in in g s k i l l an d e f f ec t iv en es s o f buy e r and s e l l e r : T h i s

f a c to r i s f i r s t l y d ep en d en t u p on th e e a ge r n es s t o ex e r c i s e on e ' s

ba r g a in in g p ow er .


27 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T h is d i f f e r e n c e b e t w e en e f f o r t l e s s an d to u g h b a r g a i n e r s t a k e

p l ace s mo re o n t h e bu y i ng t han on t he s e l l i n g s id e i n i n du s t r i a l

pu r chas ing s i t u a t i o ns . Th e op p os i t e p heno men o n i s s een i n r e t a i l

co ns u me r g o od s mar k e t s . S e co n d ly k now led g e o f ma r k e t

co nd i t i on kn o w led ge o f t h e ex t en t o f t h e co mp e t i to r s b a r g a in in g

po w er i s a l s o i mp or t an t . F o r e xa mple : when a t r ave l agen t i s

aw ar e abou t t h e s p ec i a l d ea l s a cces s ib l e t o h i s co mp e t i t i on , t h en

h e c an a l s o d e man d t h e s a me c o n ces s i o n s . T h e k n o w l e d g e o f t h e

s e l l e r s co s t a l l o w s th e bu y e r t o enq u i r e t h e s e l l e r on h ig h p r i ce s ,

t h us g iv i n g th e b u y er a ba r g a in in g p o w er o ve r t he s e l l e r . F i na l l y

t h e b a r g a in in g e f f e c t iv en es s i s a l s o in f l uen ced b y expe r i enc e .

A n e xp e r t b a r ga i n e r k no w s w he n t o c l in g o n t o a s i t u a t io n , w h a t

p r i ce t o ex t r a c t an d ho w bes t t o p e r s u ad e .

M oy er ( 19 71 ) t h r o u gh h i s r e s ea r c h b r in g s o u t t ha t t h o u g h

ba r g a in in g i s i mp o r t a n t i t w o u ld b e a mi s t a k e t o o v e r s t r e s s o n t h i s

i t n o t t h e o n ly co n t r o l l i n g f ac to r o f p r i c in g . P r i ce ba rg a in may

o c c u r i n b as i c o pe r a t i o n a l e n v i r on me n t f a c ed by the bu y e r an d

s e l l e r . I n f av o u r a b l e ma r k e t c o n d i t i o ns t h e bu y e r o r t h e s e l l e r w i l l

mak e co mpl e t e u se o f t he i r ba rga in ing adv an t age . I t i s a

pe r mu t a t i o n o f va r iou s f ac to r s t h a t en co ur ag es t h e f a sc in a t in g

ph en o me no n o f s e l l e r s co mmand in g d i f f e r en t p r i c e s f o r a p a r t i cu l a r

p r od u c t i n a s in g le mar k e t . P r i c e - ba r g a in i n g g en e r a l l y ex i s t s

be tw een w h o le sa l e r an d r e t a i l e r o r p r od uce r s an d manu fa c tu r e r ' s

ag en t .

2.5 Price in Service Organisations

Serv i ce i nd us t ry p r od uc t s i n co mp ar i s o n w i th man uf ac t u r in g

ind u s t ry p r o d u c t s a r e o f t en a s s o c i a t e d w i t h in t an g i b i l i t y ,

i n s e p a r ab i l i t y , h e t e r og en e i ty a nd p e r i s h ab i l i t y , w h ich r eq u i r e

d i f f e r e n t an d e f f ec t i v e ma r k e t i n g s t r a t eg i e s .


28 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

A s tu dy o f 3 2 3 se r v i ce o r gan i s a t i o ns i n t h e 19 8 0’ s , de mo ns t r a t ed

tha t a t an av e ra ge , s e r v i c e o r g an i s a t io n p r ac t i s ed co s t - b a s ed

p r i c i ng mo r e o f t en th a t c o m pe t i t i o n - b as ed p r i c in g , Z e i tha ml e t a l .

( 1 98 5 ) a s c i t ed in F in ch e t a l . ( 19 9 8) . I t w as a l so o b s e r v ed th a t

s e rv i ce o r g an i s a t i o ns fo un d i t d i f f i cu l t t o r edu ce p r i ce i n l ow

de man d p e r io d to t ak e i n v o lu me b u s ine s s . I t w a s id e n t i f i ed th a t

du r ing f l uc tu a t i n g d e ma n d pe r io d o r gan i s a t i o ns h an d led t h e

s i t u a t io n w i th s up p ly o r i en t ed s t r a t egy s uch a s ov e r t i me , c ro s s -

t r a in i ng o r pa r t - t i me r a th e r t h an ad j us t i ng th e i r p r i c in g a c co r d i n g

to t h e d eman d s i t u a t i o n in t h e mar ke t , a s l ow p r i c e w as u su a l ly

pe r ce iv ed wi th dep r ec i a t io n in q ua l i t y . P r i ce i s a t ang ib l e a s pec t o f

qu a l i t y ; h en ce i t w as con s id e r ed i mp o r t an t t o ma i n t a in a h i gh p r i c e .

F inch e t a l . ( 1 9 98 ) c on t r ad i c t ed P a l me r a n d C o l e by

con cep tu a l i s in g t h e s t r a t egy o f h igh l ig h t in g d e man d cu r ve by

pe r io ds o f peak , l e an an d s ho u l de r . T h ey sa id th a t t o co v e r t h e

ch a l l en g es o f f l uc t ua t i o ns i n de man d by i nd uc ing co nsu me r s t o u s e

s e rv i ce s vo lu n t a r i l y , t h us av o id ing t h e p e rc ep t io n o f l o w er q ua l i t y .

T he s t r a t eg y o f s i mu l t a n e o u s a c t i o n s to ma n ip u l a t e d e ma nd an d

su p p ly to a c co mp l i s h a ba l a n c e w as su g ge s t ed by S as s e r ( 1 97 6) .

S e r v i c e i n d us t r y i s ch a l l en g ed b y the e l e me n t o f p e r i s h ab i l i t y o f i t s

p r od u c t s ( s uch a s r oo ms , f o o d and b ev e r ag e ma t e r i a l e t c ) . A r oo m

unso ld a t a p a r t i cu l a r n igh t c an no t be accu mu la t ed t o be

su b s equ e n t ly o f f e r ed to a g u es t a t a l a t e r d a t e .

T hu s , s e l l i n g e a ch r o o m e a ch n i gh t a t t he b e s t p os s ib l e p r i c e i s

c r i t i c a l t o a h o t e l ’ s l on g - t e r m s u c ces s . T h e go a l he re i s t o

max i mi s e on th e r evenu e a t po in t i n t h e d e man d cu r v e . H e nc e ,

dec re ase i n p r i ce s i s ne ces s a ry du e t o t h e pe r i sh ab le na tu re o f h o te l

i nd u s t ry p r od u c t s an d / o r s e r v i ce s an d i s s i mi l a r t o t h e p r i ce

dy na mi cs o f pe r i s h ab l e p r od u c t s ; t h i s n a tu r e o f p r i c in g i s s i mi l a r t o

p r i c ing d y n ami cs o f p r od uc t s c lo se t o ex p i r a t i on .


29 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

2.5 .1 Select ing a Pric ing Method

Pr i c ing me t h od s r e f e r t o t h e b as i c p r in c ip l e s u s ed i n o r de r t o

ch a rg e a p r i c e . T h es e p r in c ip l e s c an r an g e f r o m ma t he ma t i ca l ly

ca l cu l a t ed on es ( exa mp le b r eak -ev en an a ly s i s ) t o r a the r

un co mp l i ca t ed o n es ( ex a mp le p r i c i ng a cco r d in g to t h e mar k e t ’ s

av e r a g e p r i c e s ) . F u r t h e rmore , t he i n t r i c ac i e s o f p r i c i n g d e c i s io n s

p r o mo t e t h e ne ed t o i mp l e men t mo r e th an o n e p r i c in g me th o d . F o r

ex a mp le , a s p ec i f i c p r i c i n g me t h od may be u sed in ev e ry d ay

p r i c i ng d e c i s io ns , w h i l e a no th e r p r i c i n g me t ho d may b e ad op t ed in

so me sp ec i a l c i r cu ms t ances .

Af t e r t he ex t en s iv e r ev i ew o f l i t e r a tu r e on s e rv i ce p r i c ing t h e

fo l lo w in g a r e t he p r i c in g me th o ds c l a s s i f i ed . Th e c l a s s i f i ca t io n i s

ado p t ed f r o m A v lo n i t i s a nd I n do u nas ( 20 05 ) . P r i c in g me t ho d s a r e

u su a l ly d e t e r min ed a f t e r an a ly s in g de ma n d , e s t ima t in g co s t ,

an a ly s ing co mp e t i t o r s co s t , p r i c in g an d o f f e r s .

CO S T -BA S E D M E T H O D S

C o s t - p l u s m e t h o d : c o s t + p r o f i t m a r g i n .

T a r g e t r e t u r n p r i c i n g : t h e p r i c e i s d e t e r m i n e d a t t h e p o i n t t h a t

y i e l d s t h e f i r m’ s t a r g e t r a t e o f r e t u r n o n i n v e s t m e n t .

B r e a k - e v e n a n a l y s i s : d e t e r m i n a t i o n o f p r i c e a t a p o i n t w h e r e t o t a l

r e v e n u e i s e q u a l t o t o t a l c o s t .

C o n t r i b u t i o n a n a l y s i s : O n l y d i r e c t c o s t o f p r o d u c t i s c o n s i d e r e d t o

d e t e r m i n e i t s p r i c e , a d e v i a t i o n f r o m b r e a k - e v e n a n a l y s i s .

M a r g i n a l p r i c i n g : p r i c e i s d e t e r m i n e d t o c o v e r m a r g i n a l c o s t s o n l y .

H e n c e p r i c e i s u s u a l l y s e t b e l o w t o t a l a n d v a r i a b l e c o s t .

CO M P E T I T I O N -B A S E D M E T H O D S

P r i c i n g s i m i l a r t o c o m p e t i t o r s o r a c c o r d i n g t o t h e m a r k e t ’ s a v e r a g e

p r i c e s .


30 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

P r i c i n g a b o v e c o m p e t i t o r s .

P r i c i n g b e l o w c o m p e t i t o r s .

P r i c i n g a c c o r d i n g t o t h e d o m i n a n t p r i c e i n t h e m a r k e t : t h e l e a d e r ’ s

p r i c e t h a t i s a d o p t e d b y t h e r e s t o f t h e o r g a n i s a t i o n i n t h e m a r k e t .

CU S T O M E R -B A S E D P R I C I N G

P e r c e i v e d - v a l u e p r i c i n g : p r i c e i s d e t e r m i n e d a f t e r o b t a i n i n g

i n f o r m a t i o n o n c u s t o m e r s ’ p e r c e p t i o n o f p r o d u c t / s e r v i c e v a l u e .

V a l u e p r i c i n g : a f a i r l y l o w p r i c e i s s e t f o r a h i g h q u a l i t y s e r v i c e .

P r i c i n g a c c o r d i n g t o t h e c u s t o m e r s ’ n e e d s .

2.5 .2 Select ing a Pric ing Pol icy

Ox en f e ld t ( 19 83 ) a s c i t ed i n A v lo n i t i s an d I n do un as ( 20 0 7) de f ines

p r i c i ng p o l i c i e s a s t he p a r t i cu l a r a c t i o n s an d p r o ced u r es ne c es s a ry

fo r r each ing t he f i na l p r i ce . He a l so e lu c id a t e s t h a t p r i c in g p o l i c i e s

c an h e l p to a t t a in s t a b i l i t y a nd v a l id i ty i n an o r g an i s a t io n s p r i c i n g

p r ac t i c e an d p r e s en t s o l u t i on s t o un an t i c ip a t ed p r i c in g s i t u a t ion s .

A c co r d in g to A v lo n i t i s an d I nd o un as ( 2 0 07 ) t h e e mp i r i c a l r e s e a r c h

con d u c t e d o n p r i c in g po l i c i e s i n s e r v i c e o r g an i s a t ion s i s l i mi t ed .

S o me o f t h es e p r i c i n g p o l i c i e s a r e a p p l i c a b l e t o a s p e c i f i c s e r v i c e .

Fo r exa mp le y i e ld man ag e men t p o l i cy i s ex t en s iv e ly u s ed in ho te l s

and a i r l i n es w h er e a s t h e o th e r po l i c i e s a r e u se d by u s ed b y man y

se r v i ce o rg an i s a t i on s .

Af t e r t he ex t en s iv e r ev i ew o f l i t e r a tu r e on s e rv i ce p r i c ing t h e

fo l lo w in g a r e t he p r i c in g me th o ds c l a s s i f i ed . Th e c l a s s i f i ca t io n i s

ado p t ed f ro m A v lo n i t i s an d I nd o un as ( 2 00 6 )

L is t p r i c i n g : P r i c e i s de t e r mi n ed w i th ou t d i f f e r en t i a t i n g i t

a cco rd ing t o t h e d i f f e r en t ma rk e t s eg men t s t ha t t he co mp an y

mi g h t t a r g e t .


31 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

D if f e r en t ia t ed pr i c in g : Ch ar g ing d i f f e r en t p r i c es t o d i f f e r en t

cu s to me r s o n t h e b as i s f a c t o r s s u ch a s t h e t i me o f t h e p u r ch a s e ,

t h e p l a ce o f t he p u r ch as e o r co nsu mp t io n o f t h e s e rv i ce an d the

cu s t o me r s ’ p e r s o n a l c h a r a c t e r i s t i c s .

G eo gr a ph i ca l p r i c in g : Ch arg in g d i f f e r en t p r i ce s t o cu s to mer s

t h a t a r e l oca t ed i n d i f f e r en t g eo gr ap h ica l l o ca t io ns .

N eg o t ia t e d pr i c in g : P r i c e i s d e t e r min ed o n the b as i s o f

i n d i v id u a l ag r ee me n t s b e t w een t h e co mp an y an d i t s cu s t o mer s .

Q u an t i t y d i s co u nt s : P r i ce d i s co un t s f o r t ho s e cu s t o me r s t h a t

pu r chas e l a r g e q uan t i t i e s .

Ca s h d i sco u n t s : P r i ce d i s co un t s f o r t h os e c u s to mer s t h a t p ay

th e i r t o t a l a mo un t w i th in a p r e - d e t e r mi n ed t i me p e r io d .

T r a de d i s c ou n t s : P r i ce d i s co u n t s t o a g e n t s a nd d i s t r i bu to r s i n

o r d e r t o p r o mo te an d s u pp o r t t h e p r od u c t o r s e r v i ce .

Lo ss - l ead er p r i c in g : Ch a r g i n g a l o w p r i ce fo r s e r v i ce in o rd e r t o

a t t r a c t c u s to me r s t ha t w i l l b e o f f e r e d o th e r mo r e p r o f i t ab l e an d

h ighe r -p r i c ed s e rv i ce s .

I ma g e p r i c i n g : P r i ce i s s e t h ig h i n o r d e r t o co n v ey an

ex c lu s iv i ty i mag e .

Pu re bun d l ing : B un d l in g o f s uc h s e r v i c e s w h i ch c a nn o t b e

pu r chas e d in d ep e n d en t ly a nd i s o f f e r ed a t a r e du c e d p r i c e .

M ix ed bu n d l in g : Bu n d l ing o f tw o s e r v i c es t h a t c a n b e p u r c ha s ed

in dep en d en t ly an d i s o f f e r e d a t a r e d u c ed p r i c e .

Re la t io n sh i p p r i c i n g : A n ap p r o a ch w h i ch a i ms a t d e v e l op in g

l o ng - t e r m r e l a t i on s h ip s w i th cus to me r s , un de r s t and in g t he i r

ne ed s and p r i c ing acco rd ing t o t h es e needs .

Y ie ld m a n a gemen t : P r i ce i s de t e r mi n ed by an a l y s in g d i f f e r e n t

ma r k e t s eg me n t s ’ d e ma n d an d ch a rg e max i mu m p r i ce t o

s eg men t s t h a t t h ey a r e w i l l i n g to p ay a l on g w i t h ma n ag in g t h e

ex i s t i n g cap ac i ty .

Ef f i c i e n c y p r i c i n g : P r i ce i s d e t e r mi ne d in - o r d e r t o l o w er t h e

co mp an y ’ s c os t t o a min i mu m l ev e l ( F o r ex a mp l e th r ou g h th e

ad op t io n o f s o ph i s t i c a t ed t e ch no l o g i e s ) t h a t w i l l co n t inu a l ly


32 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

p e r mi t t h e d e t e r mi n a t i o n o f l ow p r i c e s f o r t h o s e cu s to me r s t h a t

a r e p r i c e - s en s i t i v e .

2.5 .2 Environment

A f te r an e x t en s i v e r ev i ew o f p r i c i ng l i t e r a tu r e no w l e t u s f o cu s o n

w h a t i n f l uen ce s p r i c i ng . D e te r mi n a t i on o f p r i c i ng in v o lv es a na l y s i s

o f bo th i n ward ( co mpany -o r i en t ed ) and ou tw ar d ( en v i ro n men ta l l y

o r i en t ed ) ch a r ac t e r i s t i c s . T he in w ar d ch a r ac t e r i s t i c s c an b e f u r th e r

d iv id ed i n t o s e r v i c e ( i . e . c o s t ) an d o r g an i s a t ion a l c h a r ac t e r i s t i c s

(o rg an i s a t i on a l go a l s , ma r k e t in g o b jec t iv es e t c ) , A v lo n i t i s an d

I n do u nas ( 2 0 06 ) .

Acco rd in g to Lo ve lo ck ( 1 99 6) co s t , co mp e t i t i on and cu s to mer -

b as e d ch a ra c t e r i s t i c s , w h i ch h e r e f e r s t o a s t r i p o d , a r e c r u c i a l

w h en , d e t e r mi n in g p r i c e s . H e p r i o r i t i s e s t h es e c h a r a c t e r i s t i c s s u c h

tha t t h e va lu e t h a t t h e cu s to mer s a t t ach t o t h e s e r v i ce o r t h e i r p r i c e

e l a s t i c i ty f o r ms t h e ‘ ce i l i n g ’ o f t h e t r i po d , w h er eas co mp e t i to r s

ch a ra c t e r i s t i c s ( i . e . t he i r p r i c e s o r t h e i r ex p ec t ed r ea c t io n s ) i s

p l a c ed in t h e mi dd le o f t h e t r i po d . A go od un d er s t and i n g w i l l h e l p

t h e o r g an i s a t i o n t o n a r r o w d o w n o n a p r i c e t h a t i s a c c e p t a b l e b o t h

by t he o r g an i s a t i o n a nd c us to me r s .

M acr o eco n o mi c ch a r ac t e r i s t i c s , t h e co rp o ra t e mar k e t i n g s t r a t egy

and ob j e c t iv es , t h e mar ke t s t ru c tu r e , S e r v i ce i nn ov a t i on e t c a l s o

hav e an i n f lu en t i a l a f f e c t i n d e t e r mi n in g p r i c e s .

S h ip l ey an d J o bb er ( 2 0 01 ) a s c i t e d in A v lo n i t i s an d I n do u nas

( 2 00 7 ) hav e s a id th a t a b l e nd o f s e r v i c e , o r g an i s a t io n a l an d

env i r on men t a l ch a rac t e r i s t i c s h e lp t o de t e r min e e f f ec t iv e p r i c i n g

s t r a t eg y .


33 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

There h ave be en f ew e mp i r i c a l s t ud i e s t h a t p rove t ha t co s t i s t he

ma in de t e r min an t o f p r i c in g dec i s io n , w h i l e a s t ud y co n du c ted by

S e ga l ( 19 91 ) , a s c i t ed in A v lon i t i s an d I nd o un as ( 20 0 6) , o f 10 3 U S

a cco u n t i n g f i r ms h a s e s t ab l i s h ed th a t t i me r eq u i r e d t o c o mpl e t e t h e

job w as o f p r i mar y c on c e r n in d e t e r mi n in g co r r ec t p r i c i ng s t r a t e gy .

T o s up p or t t h i s M ei d an and C h in ( 19 95 ) , a s c i t ed i n A v l on i t i s an d

I n do u nas ( 20 0 7) , s a y th a t c os t a nd co mp e t i t o r s p r i ce s a r e t he two

ma i n d e t e r mi n an t s o f p r i c in g .

S i nce cos t an d o r g an i s a t io n a l ch a r ac t e r i s t i c s a r e b y f a r co n t r o l l ab l e

by t h e o r g an i s a t i o n , en v i r o n men t a l c h a r a c t e r i s t i c s a r e s o me t h i n g

tha t o r g a n i sa t i o ns ne ed to w a tch ou t fo r . Th e r e fo r e , t h i s r e se a rch

w o u ld f oc us on e nv i r on men t a l c h a r a c t e r i s t i c s . I n t h i s dy nami c

env i r on me n t w i th i mmen s e g r ow t h o p po r t un i t i e s o r g an i s a t io n n e e d

to b e aw ar e abo u t t h e ch an ge in th e b us i nes s en v i ro n men t i n - o r de r

t o t ap th e r ig h t r e s o ur ce ( mar ke t s eg men t ) , an a ly s e th e cu r r en t an d

fu tu r e r equ i r e men t s o f t he ma rk e t and de l i ve r i t a t an op t i ma l p r i c e

so a s t o max i mi s e t he i r r ev enu e .

A f t e r t h e e x t en s i v e r ev i ew o f l i t e r a t u r e o n p r i c in g s t r a t eg i e s t h e

f o l l o w i n g a r e e n v i r o n me n t a l ch a r ac t e r i s t i c s c l a s s i f i e d . T h e

c l a s s i f i c a t io n i s a do p ted f r o m A v lo n i t i s an d I nd o un as ( 20 07 ) . T h e

r e se a r che r ha s c l a s s i f i ed t h em in to E cono mic and Marke t f a c to r s .

E C O N O M I C F A C T O R S

T h e e x i s t i n g l e v e l o f t h e i n t e r e s t r a t e s : The ex i s t i ng i n t e r e s t

r a t e s i n t h e co u n t r y f o r mu l a t e d b y t h e cen t r a l b an k .

The fu ture ex p ec t ed l e ve l o f the in t e r e s t ra t e s : Th e p r ed i c t ed

ch an ges i n t he in t e r e s t r a t e s .

O th er ma cr o eco n om i c ch a ra c t e r i s t i c s : A c h a n g e i n c h a r a c t e r s

s uc h a s G D P , u n e mp lo y men t r a t e s , g r o w t h r a t e s , i n f l a t i on , e t c .

Th e l ev e l o f g ov er n men t a l in t e r ven t io n : Th e ex t en t t o w h i c h

go v e rn me n t i n t e r f e r e s i n an in du s t r y ’ s p r i c in g p r ac t i c e s .


34 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Th e ex i s t in g r egu l a t i on r eg ar d in g p r i c in g pr a c t i c e s : T he l a w s

a s s o c i a t e d w i th sp e c i f i c p r i c in g p r a c t i c es s u c h a s p r i c i ng be low

co s t , p r i c e c o l lu s i o n s a nd p r i c e d i f f e r en t i a t i on .

M A R K E T F A C T O R S

T h e p r o ces s th a t c u s t om e r s ad o p t in o r d er t o e va lu a t e th e

s e r v i c e : C r i t e r i a s u ch a s p r i c e , f a me , an d cus to mer s e rv i ce th a t

cu s to me r ’ s u s e f o r j u d g i n g t he s e r v i c e ’ s o u t co me .

Th e va l u e th a t cu s t om er s a t ta ch to th e s e r v i c e : Th e co s t s ( i . e .

mo ne t a ry , p sy ch ic , en e rg y , t i me ) t h a t cu s t o mer s mus t i n cu r v s .

t h e b en e f i t s a s s oc i a t ed w i th o b ta in in g th e s e r v i c e .

T h e cu s to mer s ’ p er s o n a l ch a r a c t e r i s t i c s : T h e de mo g r ap h i c o f

t he cus tomer s .

T h e d i s t r ib u t io n ch a n n e l th a t cu s t o me r s u s e : Th e ex t en t t o

w h i ch cu s to mer s p u r ch as e t h e s e rv i c e v i a i n t e r n e t o r t e l ep h on e .

Th e cu s t om er s ’ p r i ce e l as t i c i t y : Th e cu s to mer s ’ p u rch as e

beh av io u r .

Th e co mp e t i t o r s ’ p r i ce s .

Th e ex i s t in g Br a nd va lu e i n s o c i e t y .

Th e exp ec t ed com p e t i t i v e r ea c t io n s : The co mpe t i t o r s ’ r e sponse s

to th e co mp an y ’ s p r i c e in i t i a t i v es .

T h e th r e a t o f n e w co mp e t i t o r s e n ter in g i n to t h e ma r k e t .

Th e in t ens i t y o f co mpe t i t i o n amon g th e ex i s t i n g co mp a n ies .

T h e t h r e a t f r o m s u b s t i t u t e s : T h e ex t en t t o w h ich t h e r e a r e

s i mi l a r b u t n o t i d en t i c a l s e r v i c es .

T h e b u y er s ’ b a r g a i n in g p ow er : T h e ex t en t t o w h ich cu s to me r s

can i mp o s e th e i r w i l l w hen mak in g b us in es s w i th t h e co mp an y .

T h e s u p p l i e r s ’ b a r g a in in g p o w er : T h e ex t en t t o w h i ch s u p p l i e r s

can i mp o s e th e i r w i l l w hen mak in g b us in es s w i th t h e co mp an y .


35 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

2.6 Conclusion

A h o te l man ag er r e p e a t ed l y s eek s th e b es t s t r a t e g y to s e t t h e i r

p r i ce s fo r p r o f i t . W i th in t h i s co n tex t t h ey n eed d e t e rmi n e w he th e r

an i n c re a s e i n p r i ce w o u ld c aus e t h e i r cus to me r s t o s t op p u r ch as i n g

t h e i r h o t e l r o o ms a nd s en d t h e m t o a co mp e t i t o r o r w h e th e r a p r i c e

d i s cou n t i n i t i a t ed by th e i r co mp e t i t o r w o u ld cau s e t h e i r cu s to mers

t o s w i t ch f r o m th e i r p r o pe r ty t o an o t he r . Th u s , beg in s t h e r ace to

p r i ce y ou r h o t e l r o o m’s r i gh t .

T he r e s e a r ch e r t h r ou gh t h i s ch ap t e r h as b r ou g h t ou t p r i c ing f ro m

the p o in t o f v i e w o f econ o m ics a nd mar k e t i ng , t he d i f f e r en c e b e in g

in t h e o r ig i n , mi s s io n cen t r a l i t y o f t h e o r y an d d o c t r in a l e v o lu t io n

o f t he tw o d i sc ip l i n es . M ar k e t in g t a ke s u p a b eh av iou r i s t ap p r oa c h

to p r i c in g w h i l e e co n o mi c s i t g l u e d to i t s p r i nc ip l e o f u t i l i t y -

max i mi s a t io n . E co n o mi cs co ns id e r s p r i c in g t o be t h e e s s enc e o f

bu s in es s d e c i s io n in - o r de r f o r p r o f i t max i mi s a t i on w h i l e mar k e t in g

r eg a r ds p r i c in g a s i mpo r t an t a s t he o th e r c o mpo ne n t s o f t h e

mar k e t in g mix .

I t i s e v i de n t t h a t en v i r o n men t a l ch a r a c t e r i s t i c s a nd p r i c in g

s t r a t eg i e s hav e b een s t ud i e d ex t en s i ve ly f r om a n e mpi r i c a l a n d

the o r e t i c a l p e r s p e c t iv e . T h u s , f ro m th e l i t e r a tu r e o f p r i c in g

s t r a t eg y i t h as e m er ged t h a t s e r v i c e , o r g an i s a t i o n a l ch a r ac t e r i s t i c s

and env i r on men ta l cha r ac t e r i s t i c s i n f l uen ce t h e p r i c i n g s t r a t eg y o f

any o rg an i s a t i on . S i nce co s t an d o r gan i s a t io n a l ch a r ac t e r i s t i c s a r e

by f a r co n t r o l l a b l e by th e o r g an i s a t ion , en v i r o n men t a l

ch a r a c t e r i s t i c s a r e s o me th i n g t h a t o r g an i s a t i o n s n e ed t o w a t ch o u t

f o r . T h e r e f o r e , t h i s r e s e a r c h w ou ld f o cu s o n en v i r o n men ta l

ch a ra c t e r i s t i c s . I n t h i s dy na mi c env i r on men t w i th i mmens e g r o wt h

op po r tun i t i e s o rg an i sa t i on n eed to b e aw are ab ou t t h e ch an ge in t h e

bu s in es s en v i r o n men t i n -o rd e r t o t ap t h e r ig h t r e s o u r ce ( mark e t

s eg men t ) , ana ly s e t he cu r r en t and fu tu r e r equ i r eme n t s o f t he mark e t

and d e l iv e r i t a t a n o p t i ma l p r i c e s o a s t o max i mi s e th e i r r ev en u e .


36 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Chapter 3: Research Methodology

3.1 Introduction

T h e i n t en t o f t h i s ch ap t e r i s t o h ig h l i g h t t h e r e s e a r c h me t h o d o l o g y

i mp le men t ed by the r e s ea r ch e r t o e s t ab l i s h a f r a mew o rk f o r t he

d i s se r t a t i o n . A f t e r hav in g i d en t i f i ed t h e p r i c ing s t r a t egy an d

env i r on men t a l cha rac t e r i s t i c s a s t h e r e s e a r ch v a r i ab l e s , t h i s ch ap t e r

f u r t he r s ex p l a in s t he r e sea r ch t o o l s adop t ed fo r c a r r y ing ou t t h e

p r i ma r y r e s e a r c h a n d e va lu a t in g th e hy p o t he s i s d e r iv ed f r o m th e

seco nd a r y r e s ea r ch .

3.2 The Research Purpose and Framework

T he pu r p os e o f t h i s s t u dy i s t o i nv es t i g a t e h o w cha n g in g

env i r on men t a l ch a rac t e r i s t i c s a f f ec t t h e p r i c i ng s t r a t egy o f h o te l s

i n I n d i a . I n o r de r t o a r r i v e a t a c o mpr eh en s ive co n c l u s i on a t t he

end o f t h e r e s ea r ch th e r e s e a r c h e r h as u t i l i s ed d es c r ip t iv e ,

hy po th e t i co - d ed u c t ive me th o d o log y .

Des c r ip t i ve r e s e a r ch i s des i gn ed to d es c r ib e th e ch a r ac t e r i s t i c s o r

beh av io u r s o f a p a r t i c u l a r s a mp le in a s y s te ma t i c a nd ac c u r a t e

f a s h io n . I t i s a l so r e f e r r ed to a s n o n - ex p e r i men t a l o r co r r e l a t io n

r e s e a rch . D es c r i p t i v e r e s ea r ch i s u s ed to a cq u i r e i n f o r ma t io n

con ce rn in g th e cu r r en t s t a tu s o f t h e ph en o me na to d es c r ib e "w h a t

ex i s t s " w i t h r e s p e c t t o v a r i ab l e s o r con d i t i o ns i n a s i t u a t i on . I n

co n t ex t t o t h i s r e s ea r ch d e s c r i p t i v e r e s ea r ch i s u s ed t o i d en t i fy t h e

p r i c i ng me t h o ds an d po l i c i e s u s e d in t h e I n d ian H o t e l I nd us t ry i n

t he cu r r en t en v i ro n men t a l s cen a r i o . Th e me t h o d i nv o l v ed i s

d ev e l o p men t a l s tu d ie s w h i c h s eek t o d e t e r mi n e ch ang es o v e r t i me .

T he r e h a v e b e en v a r i ou s a t t e mp t s by au th o r s t o de f in e r e s e a r ch b u t

t he mo s t w ide ly a ccep te d de f i n i t i on o f r e s ea r ch i s s t a t ed by

Seka ran ( 1 99 2 ) .


37 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

She s t a t e s t ha t :

“R esea rch can be d e f i n ed a s a n o r gan i sed , s y s t em a t i c , d a ta ba sed ,

c r i t i ca l , s c i en t i f i c i nq u i r y o r i n ves t i g a t io n i n to a s p ec i f i c p r o b l em ,

un der ta k en w i t h t h e o b je c t i v e o f f i n d i ng an s we r s o r s o lu t i on s to

i t . ”

T h i s r e s e a r c h i s a n e f f o r t t o i d e n t i f y t h e p r i c i n g s t r a t eg i e s ad o p ted

by I nd ian ho t e l i n du s t ry an d un de r s t and t h e en v i ro n men ta l co n t e x t

i n w h ich t h e s e p r i c in g s t r a t eg i e s a r e a p p l i e d i n o r d e r t o max i mis e

on r ev en u e g en e r a t i on . F u r th e r t h e r e s e a r ch e r w i l l d e lv e i n t o t h e

con cep t o f p r i c i n g a s t h e k ey e l e men t o f t h e t h r ee d i s c ip l in e i . e .

r ev en u e man a g e men t , e c on o mi cs an d mar k e t i n g .

The p r e l i mina r y s t ep i n t h i s p r oc es s i s t o exa min e whe re t he

p r ob le m l i e s an d to g a th e r i n f o r ma t ion r eg a r d i ng t h e s a me .

Fo cu s s in g on th e ba s i c p e r s pe c t iv e th e r e s ea r ch e r a t t e mp t s t o

un de r s t a nd p r i c in g s t r a t eg y f r o m th e p o in t o f v i e w o f r ev en u e

man ag e men t , e con o mics an d mar k e t in g a s t h e key e l e men t t h a t

de t e r mi n es th e l o n g t e r m s u cces s o f a co mpany . T he r e s ea r ch e r

u s es i n f o r ma t io n f ro m o th e r r e sea r ch a r t i c l e s an d b oo k s pu b l i s hed

on th e s ub jec t o f p r i c in g to co n cep tua l i s e t h a t p r ob le m d o main ,

wh ich i s ca r ved ou t i n t h e l i t e r a tu r e r ev i ew .

T h e a r g u me n t p r e se n t ed in t h e l i t e r a tu r e r e v i e w w i l l b e t e s t ed t o

t h r o ug h p e r s o n a l ly ad min i s t e r q u es t i o nn a i r e ( qu a l i t a t i v e

t e ch n iqu e ) . T h e d a t a ob t a in e d w o u ld be p r o ces s ed t o f i n d

s i mi l a r i t i e s a nd d i s s i mi l a r i t i e s a mo ng s t v a r iou s r e s po n de n t s i n

t he i r p r a c t i c es t o a r r iv e a t c o mp r eh en s i ve con c lu s io n r ega rd in g t h e

i s s u e .

The f r a mew or k o f t h e r e s ea r ch i s d i ag r a m ma t i ca l ly r ep re s en t ed in

t he n ex t p ag e .


38 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

F igure 3. 1: Proposed Research Framework


39 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

3.3 The Research Process

Seka ran (1 99 2) d i s t i ng u i shes r e sea r ch i n to tw o b as i c t y p es

acco r d in g t o i t s p u r po s e . O n e a i m o f r e sea r ch i s t o dec iph e r an

ex i s t i n g p r o b le m i n t h e w o r k in g en v i ro n men t and th e o th e r g oa l i s

t o ad d v a lu e to t h e k no w l ed g e b an k o f a p a r t i cu l a r s u b je c t o f

s i gn i f i c ance t o t he r e s e a r ch e r . She s t a t e s t ha t when r e sea r c h i s

u s ed to e mp l oy th e f in a l r e s u l t s t o c r a ck s p ec i f i c p r ob l e ms

cu r r en t ly b e i ng e x pe r i e nc e d i n t h e o r g an i s a t i on , i t i s kn o w n a s

A pp l i ed R es ea r ch . N ev e r t h e l e s s , w h en r e s ea r ch i s p r i ma r i ly

con d u c t e d t o en h a n c e ou r u nd e r s t an d i ng o f c e r t a in i s s ues t h a t

co m mo nl y occu r i n o rg an i s a t ion a l s e t t i n g an d ho w to s o lv e t h e m,

t hen i t i s r e f e r r ed t o B a s ic , F u n d a m e n t a l o r P u r e r e s ea r ch .

Res e a rch co ns i s t s o f l o g ic a l s t ep s o f w e l l r e f l ec t ed an d ca r e f u l ly

pe r f o r me d a c t i v i t i e s t h a t a l l ow s th e r e s e a r c h e r t o k n o w h o w t he

i s s ue on hand can b e an a l y s ed , con s t r uc t ed an d r e s o l v ed . I t i s a

sy s t e ma t i c a l l y p l a nn ed an d s t r u c t u r ed ap p r o ach to i n ves t ig a t e a

sp ec i f i c p r ob le m t h a t n eed s a s o lu t io n . R es ea r ch thu s e nco mp as s es

t he p r o ces s o f i n qu i r y , i n ves t ig a t io n , e x a mi n a t io n an d

exp e r i me n t a t io n .

Th i s r e s ea r ch b e in g acad e mica l ly i nc l i n ed , w i s h t o o p e r a t io n a l i s e

i t s f i n d in g s f r o m l i t e r a tu re r ev i ew to t h e r ea l wo r ld s cen a r io . T h e

r e s e a r c h e r a s p r opo s ed e a r l i e r , h a s e mplo y ed th e h y p o t he t i c o -

ded u c t iv e r e s e a r ch me th o do lo gy kee p i ng in mi nd th e scop e a n d

l i mi t a t i o n s o f t h i s r e s ea r c h t o g u a r an t ee s t r e n g th in t h e r e s u l t s .

T h i s r e s e a r ch w i l l b e e mp i r i c a l ly t e s t ed f r o m th e I nd ia n h o te l

i nd u s t ry an d th e ba sk e t o f s a mp le w o u ld in c l u d e r e ven u e man ag er s

f r o m p r o mi n en t h o te l ch a i n ( T a j g r o u p o f h o t e l s , H y a t t an d

M ar r io t t ’ s I nd ia P v t L td ) .


40 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

3.3 .1 Hypothet ico-Deduct ive Method

T he h y p o t he t i co -d ed u c t iv e r e s e a r c h me th od i nv o l ve s s e v e n

d i f f e r en t s t a g e s . F o r t he e a s e o f un de r s t an d in g t he r e s e a r ch e r has

d i a g r a mm at i c a l l y r e p r es e n t e d ( in f i g u r e 3 .2 ) t h e f lo w o f t h i s

r e s e a rch me t h od . T he r e s ea r ch e r ha s d e s c r ib ed i n d e t a i l t h e

r e se a r ch on han d i n a cco rdan ce t o t he hy po the t i co -dedu c t i ve

r e s e a r c h me t ho d .

F igure 3. 2: Hypothet i co ‐Deduct ive research method adopted f rom Sekaran (1992)

O B S E R V A T I O N S T A G E

Thi s i s t h e f i r s t s t ag e o f r e s ea r ch w h er e th e o ne s ens e s th a t c e r t a i n

ch a ng es a r e t ak in g p l a c e , o r t h a t s o me n e w behav io u r s , a t t i t u des

and f ee l i n g s a r e emer g in g i n th e en v i r o n men t . I n t h i s co n t ex t t h e

r e s e a rch e r h as l e a r n t f r o m t h e l i t e r a tu r e t h a t a l l t h e t h r ee

d i s c ip l in e s r ev en u e man a g e men t , ma r k e t i n g an d e c on o mi cs l ay

e mp h a s i s o n p r i c i n g p r ac t i c e s a s t h e k ey d r iv e r o f a n o r gan i s a t i o n

p r o f i t ab i l i t y an d lo ng - t e r m s ucces s . P r i c in g i s p e rh ap s t h e mo s t

d i f f i cu l t ma r k e t in g t a s k f o r b u s ine s s es b ig o r s ma l l . A h o te l r oo m

w h ich i s u ns o ld on an y p a r t i cu l a r n i gh t c a nn o t b e s to ck ed t o

subsequen t ly o f f e r t o gues t s a t a l a t e r s t age .


41 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T hu s , s e l l i n g e a ch r o o m e a ch n i gh t a t t he b e s t p os s ib l e p r i c e i s

c r i t i c a l t o a ho t e l ’ s l ong - t e r m s u c c e s s . N ow h o w i s t h i s b es t

po s s ib l e p r i c e ach iev ed ? Th e b es t p os s ib l e p r i c e i s d e t e r mi n e d by

va r io us f a c to r s s uc h a s o r gan i s a t io n a l g o a l s , t h e mar ke t i n w h i c h

the o r g an i s a t i o n ex i s t s , t h e f i nanc i a l s t a t e o f t h e o rg an i s a t i on an d

the p r o du c t s a nd s e r v i c es o f t h e o r gan i s a t io n . W i t h c h a ng in g t i me

the b u s i ne s s en v i r o n men t a l s o ch a ng es an d d e ma n d s d i f f e r e n t

r eq u i r e men t s f r o m an o r g a n i s a t io n . I t i s h ow w e l l t h e o r gan i s a t io n

r ea ds th e ch an g i ng r eq u i r e m en t s o f t h e en v i r o n me n t an d c a t e r s t o i t

t h r o ug h in n ov a t i o n an d p r i c in g . T h i s d i s s e r t a t i on w i l l co n c en t r a t e

on t he p r i c in g a s p e c t r a th e r t h an in n o v a t i on .

P R E L I M I N A R Y D A T A G A T H E R I N G

Thi s s t ag e o f t he r e s ea r ch en co mp a s s e s o f s ee k i n g o f i n f o r ma t i o n

to k no w mo r e a bo u t o n e o b s e r ved . S e ka r an ( 1 9 92 ) h as s t a t e d t h a t

p r e l i mi n a ry d a t a c an b e g a th e r ed th r o ug h se co nd a ry d a t a .

Seco nd a r y d a t a c on s i s t s o f co py r igh t a r t i c l e s an d e - bo o ks an d

b o o k s av a i l ab l e f ro m s o u r c es s u c h a s p u b l i c a t io n ( pu b l i s h e d o r

un pu b l i s h ed ) and l i b r a ry r e se a r ch .

To ga the r neces sa ry da t a , t he r e s ea r che r exp lo r ed many s e a r ch

eng in es a nd in f o r ma t ion d a t a b a s es s u ch a s G o og le , S c i en ce d i r e c t ,

Sage pu b l i ca t i o n , EBS CO e lec t ro n i c j o u r n a l an d s e r v i c es , e - b r a ry ,

E mer a l d F u l l t ex t , Th e Cen te r f o r H o s p i t a l i t y Res ea r ch , e t c . by

ty p in g key w o r d s ‘ p r i c in g + p d f ’ , ‘ p r i c i ng o f s e r v i c es + pd f ’ ,

‘ p r i c in g o f s e r v i c e o r g a n i s a t i o n s ’ , ‘ p r i c i n g s t r a t eg y o f s e r v i c e

o r g an i s a t io ns ’ , ‘ s e r v i ce p r i c i ng ’ , ‘ f a c t or s a f f e c t i ng p r i c i ng o f

s e r v i ce i n du s t r y ’ , ‘ p r in c ip l e s o f p r i c ing ’ , ‘ en v i r o nm e n t a l f ac to r s o f

bu s in es s ’ , ‘ s t ra t eg i c p r i c in g ’ , ‘ p r i c in g i n im per f ec t c om p e t i t i o n ’ ,

‘ m a r ke t i ng a nd pr i c in g ’ , ‘ e c on om i c t h eo r i e s o f p r i c i ng ’ , e t c . i n t h e

sea r ch en g ine s .


42 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

The r e s ea r ch e r ha s co l l e c t ed a l a r ge q uan t i t y o f i n fo r ma t i on o n

p r i c i ng s t r a t eg y a nd en v i r o n men t a l cha r ac t e r i s t i c s f r o m va r io u s

au t ho r s s u ch a s A v l on i t i s a n d I nd o un as ( 2 0 0 5 ) , Cr os s , R . G ( 19 9 7) ,

Dew et t , K .K a nd V ar ma , J . D . ( 20 0 5) , M a xw e l l , S . ( 1 999 ) , M oy er ,

R . ( 1 97 1 ) , K as av an a an d B r o o ks ( 19 96 ) , S k ou r a s e t a l . ( 20 0 5) ,

F inch e t a l . ( 1 9 98 ) , L ov e l o ck , C .H . ( 1 99 6) , e t c .

The i n f o r ma t io n w as ga i n e d f r o m th e a bo v e men t ion ed i n f o r ma t i o n

da t ab as es f r o m th e A T H E N S da tab as e th r o ug h v a r iou s j ou r n a l s s uc h

a s Jo u r na l o f S e rv i c e s Mar ke t in g , Jo u r n a l o f P ro duc t & Br an d

M anag e m en t , E u r op e a n J ou r na l o f M a r k e t i ng , T h e S e r v i c e I n d us t r y

Jo u r n a l , e t c .

T he me t h o d o f ‘ sn ow b a l l i n g ’ w as u se d t o f i n d r e l e van t a r t i c l e s

wh ich w e re r e s ea rch ed by o th e r au tho r s men t io ned i n t h e

r e f e r en c e s . T h e au th o r s n ame an d t h e a r t i c l e t i t l e w as ty p e d in t h e

Go o g l e se a r ch en g ine t o p r o cu re th es e a r t i c l e s . F o r t h os e a r t i c l e s

t ha t co u l d n o t b e p ro cu red by th i s me tho d du e a cces s i b i l i t y i s su e ,

t he e ma i l ad d r e s s w as ob ta i n ed th ro ug h Go o g l e by ty p in g t h e

au t ho r s n a me an d / o r u n iv e r s i ty name + e ma i l ad d r e s s o r o the r

s i mi l a r c o mb in a t i o n .

T H E O R Y F O R M U L A T I O N

O n ce t h e r e l e v an t d a t a i s ga th e re d th e n e x t s t e p o f a c t ion i s t o

r ev i ew the l i t e r a tu r e av a i l a b l e on t h e s u b j e c t o f c o n c e r n an d f o r m

the l i t e r a t u r e r ev i ew . A c co rd in g to S ek a r an ( 19 9 2) , a t he o r e t i c a l

f r a mew or k i s a co ncep tu a l mo d e l o f ho w o n e hy p o th es i s e s t h e

r e l a t io n s h ip s be t w een th e f ac to r s co ns id e r ed f o r s tu dy . T he or y

fo r mul a t i o n in t eg r a t e s a l l t he i n f o rma t io n in a l o g i c a l mann e r , s o

t ha t t h e de t e r mi n an t s f o r t h e i s s u e can be con cep tu a l i s ed an d

t e s t ed .


43 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Va r ia b l e s

A t th i s s t a g e s ig n i f i c an t v a r i ab l e s a r e s c r u t i n i z ed a s t o t h e i r

con t r ib u t ion o r i n f lu en ce in ex p la in i ng w hy the p r o b l e m o cc u r s an d

ho w i t c an s o lv e d . T h e c as e i s s eg r eg a t ed in to d e p en d a n t an d

ind ep en d en t v a r i ab l e , w h ich a r e o f p r imary in t e r e s t t o t h e

r e s e a rch e r an d co n s t i t u t e t h e ma i n v a r i ab l e s o f t he h y p o thes i s .

D ep en d en t V ar i ab le : Th i s v a r i ab l e i s o f p r imar y in t e r e s t t o t h e

r e s ea r ch e r . I t i s t h e k ey va r i ab l e t ha t l en d s i t s e l f a s a v i ab l e

f ac to r f o r i nv es t i ga t io n . I t i s po s s ib l e t o f i n d s o lu t i on to t he

p r o b le m in h an d t h r o ug h th i s va r i a b l e , S ek a r a n ( 1 9 92 ) . I n t h i s

r e s e a r ch t h e d e pen d an t v a r i ab l e i s ‘P r ic in g S t r a t eg y ’ .

I nd ep enden t V a r i a b le : Th i s va r i ab l e i n f lu en c es t h e d ep en den t

va r i a b l e e i t h e r i n a p os i t i v e o r n ega t iv e ma n n er . T h e v a r i an c e

in t h e d e p end en t i s ac c ou n t e d f o r by t he in d e pend en t va r i a b l e ,

S ek a r a n ( 1 99 2 ) . H en ce , t h e in dep en d e n t v a r i a b l e i n t h i s r e s e a r c h

i s i d en t i f i ed a s ‘E nv i ronmen ta l Charac t e r i s t i c s ’ .

H Y P O T H E S I S I N G

S e ka r a n ( 1 9 92 ) d e f ine s t ha t , “a hypo thes i s i s l og i ca l l y con j ec tu red

re la t io ns h ip be t we en t wo or m o r e va r ia b l e s exp r es s ed in t h e f o r m

o f t e s tab le s t a t e m en t ba s ed o n a ne two r k o n o f a s s o c ia t i o ns

e s ta b l i s h ed in t h e t h eo r e t i ca l f r am ewo r k fo r m u l a t ed f o r t h e

r e s ea r c h s tu d y . ”

A hy p o t he s i s i s a n ed u c a t e d g u es s ab o u t a p r ob le m’ s so lu t io n . I t

l og i c a l ly b u i ld s a r e l a t io n s h ip b e t w e en t h e v a r i ab l e s i n o r d e r t o

f o r m a t e s t ab l e p r o c l a ma t i o n .


44 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

A s l ea rn ed f r o m th e l i t e r a tu r e r ev i ew tha t a n o r g an i s a t i o n s p r i c i n g

i s p r i mar i ly d ep en den t on p ro ce s s e s by w h ich p r i c e s a r e d e t e r mi n e d

and th e beh av io u r a l ex a mi n a t io n o f i s s u es s u ch a s p r i c i n g

ob jec t iv e s , p r i c i n g me th o d s f o l l o w e d ( i . e . co s t - ba s e d , d e ma nd -

b as e d an d co mp e t i t i o n - b as ed ) , t h e p r i c in g p o l i c i e s ado p ted ( i . e . l i s t

p r i c i ng , n eg o t i a t e d p r i c in g , g eo gr ap h i c a l p r i c in g , p r i c e b un d l in g

e t c . ) , f a c to r s t h a t a f f e c t p r i c in g ( s e r v i c e , o r g an i s a t i on a l an d

env i r on men t a l ) .

A f t e r s t u d y i n g r e l e v a n t d a t a a n d l i t e r a tu r e a v a i l ab l e o n th e i s s u e

and keep ing i n mi n d t h e r e s ea r ch a i m an d ob j e c t i v es , t he r e sea r ch e r

has b e en a b l e t o g en e r a t e t h e f o l l ow in g h y p o the s i s :

The h y po thes i s me n t ion ed w o u ld b e t e s t ed t h r o ug h qu a l i t a t i v e

an a ly s i s co n s id e r i ng t he l e a r n in g f r o m th e l i t e r a tu r e r e v i ew .

F U R T H E R SC I E N T I F I C D A T A C O L L E C T I O N

S e k a r a n ( 19 9 2 ) s ay s t h a t s c i e n t i f i c d a t a co l l e c t io n i s n e ces s a r y t o

t e s t h y po th es i s t h a t i s g en e r a t ed f r o m th e s t u dy . T h i s d a t a f u r t h e r

f o r ms th e b a s i s f o r d a t a an a l y s i s .

Af t e r f o rmu l a t i ng t h e h y po t hes i s , d a t a n ee ds t o be co l l ec t ed t o

ev a lu a t e t h e ex t en t o f r e l a t i on s h ip b e tw een th e tw o v a r i ab l e s , g aps

i s any an d t e s t t h e hy p o th es i s . D a ta p e r t a i n i n g to ev e r y v a r i ab l e i n

t he l i t e r a tu re r ev i e w f r o m w h ich th e hy po th es i s i s gen e ra t ed s ho u ld

be co l l e c t ed . Th i s he lps t h e r e s e a rch e r fo r f u r th e r d a t a an a ly s i s .

The re a r e ma ny w ay s to s eek e mp i r i c a l d a t a , t h e mos t co m mo n

me t h o ds be in g p e r s o n a l i n t e r v i ew s , o bs e r v a t i o n , d oc u men t a na l y s i s

t e l e p h o n i c i n t e r v i e w , e ma i l o r r eg u la r ma i l , e ma i l s u r v e y o r f ac e -

to - f ac e s u r v ey .


45 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T he r e s e a r ch e r p l a n s to t e s t t h e p r o p o s ed h y po the s i s i n t h e I n d ia n

ho t e l i n d us t ry con tex t . T h e r e s e a r c h e r i n t en d s o n c a p t u r i n g t h e

v i ews o f r evenu e ma nag er s f r om the p ro min en t ho t e l cha in such a s

M ar r io t t an d th e T a j g ro up o f h o t e l s .

Res e ar ch to o l s A p p l i e d

The r e s e a r ch i n t end s to ex a mi n e t h e e f f ec t o f ch an g e in

env i r on men t a l ch a r ac t e r i s t i c s on p r i c in g s t r a t eg i e s o f h o t e l s .

S p ec i f i c qu es t io n s h av e to be a s ked in o r d e r t o e f f e c t i v e ly c ap t u r e

t he i r v i e w s on t he ab o v e th e me .

The r e se a r ch e r h as u sed t h e qua l i t a t i v e me thod t o con duc t

e mp i r i c a l r e s e a r c h . T h e d a t a w a s s e c u r e d b y mean s o f a

qu es t io n n a i r e .

F o l l ow in g t h e s u g g es t i on s o f man y mar k e t in g r e s e a r c h a c ad e mi cs ,

an e f f o r t w as ma de to av o id l e ad i ng an d u n a mb ig u o u s qu es t i on s ,

pay in g pa r t i cu l a r a t t en t io n t o t h e w or d i ng a nd s eq u en c e o f

qu es t io n s an d en s u r in g a p r o f e s s i on a l s ty l e an d f o r ma t .

P r i c ing me th o ds an d P r i c in g P o l i cy ( P r i c in g S t r a t eg y )

In o rd e r t o i d en t i f y t he p r i c i ng me th od s an d p r i c i ng p o l i cy

p r ac t i c ed in t he I nd ian h o t e l i n du s t ry , t he op e r a t i o n a l i s a t i o n p u t

f o r w a r d by A v lo n i t i s and I n do u na s ( 20 05 ) a nd A v lo n i t i s a n d

In do u nas (2 00 6) w i th r eg a r d t o p r i c ing me tho d s an d p r i c in g

po l i c i e s r e s p e c t i v e l y w a s ad o p t e d . D a t a r eg a r d in g p r i c ing w as

ga t h e r ed in t h e f o r m o f o p en - en d e d q u es t io n w h ich i s s i t ua t i o n

sp ec i f i c .

Env i ron men ta l Ch a rac t e r i s t i c s

I n o r d e r t o i d en t i f y t he c h a n g e env i ron men ta l cha r ac t e r i s t i c s t h a t

i n f lu en c e p r i c in g s t r a t eg i e s p r ac t i c e d in t h e I nd ia n h o te l i nd u s t ry ,

t he o p e r a t io n a l i s a t i on p u t f o r w ar d by A v lo n i t i s an d I n do u na s

(2 00 7 ) w i th env i r on men t a l c ha r ac t e r i s t i c s w as ad op t ed .


46 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

D a t a r eg a r d in g en v i r o n me n t a l ch a r a c t e r i s t i c s w as g a t h e r ed i n t h e

fo r m o f :

a ) A 5- p o i n t L ik e r t s c a l e r e f l e c t in g th e r a ng e o f r e s p on s es b e tw e en

s t r on g ly d i s ag r ee t o s t ro ng ly ag r ee .

b ) O pe n en d ed q u es t i o n w h ich d e man d e d t h e c on tex t i n w h i ch t h e

ch an ge i n en v i r o n men t ch a r ac t e r i s t i c s w o u l d caus e a ch an ge i n

p r i c ing .

Sampl ing

Seka ran (1992 ) de f i n es s amp l ing a s “ t h e m e th o d o f s e l e c t i n g a n

ad eq ua t e n u m ber o f e l em en t s f r o m th e p op u la t io n s o th a t b y

s t ud y in g t h e s a m ple a n d un d er s ta nd in g th e p r o p er t i e s o r t h e

f ea tu re s o f t h e samp le sub j ec t s , o n e ca n g en er a l i s e t he p r o p e r t i e s

o r f ea tu re s o f t h e s a m p l e su b j e c t s , o n e ca n g e n e ra l i s e t h e

p roper t i e s o r f ea tu r es t o t h e p o pu la t i o n e l e m e n t .”

I t i s t h e mo s t i mp o r t an t f a c t o r , w h i c h c an d e t e r mi n e th e v a l i d i ty

and r ob u s tne s s a s w e l l a s t he d e s t in y o f hy po th es i s o f t h e r e s ea r ch .

The s a m pl in g o f t h i s r e s ea r ch ha s been l i mi t ed to t he r ev en u e

man ag er s o f h o t e l s i n I nd ia n on ly . K e ep i ng in mi n d t he r e se a r c h

a i ms an d o b jec t iv e s and t he hy po th es i s t o be t e s t ed , i t w a s

neces s a ry t o make ce r t a in t h a t t he s amp l e cho s en fo r t h i s r e s e a r ch

i s e du ca t ed , kn o w led g e ab l e abo u t t h e r e s e a r c h a r e a an d u nd e r s t an d

the i mp l i c a t io n o f bo th th e a s p ec t s be ing co mp ar ed , p r i c in g

s t r a t eg y an d en v i r o n men t a l c h a r a c t e r i s t i c s .

T h e s a mp l e i n c l u d ed r ev en ue ma n ag er s f r o m T a j M ah a l P a l a c e an d

T o w e r , T a j P r es i d e n t M u mba i , T a j L an d s E n d M u mb a i , J W

M ar r io t t M u mb a i , Hy a t t Reg en cy Mu mba i , J W M ar r io t G o a an d J

W M a r r io t t H y d er ab ad .


47 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

DA T A A N A L Y S I S

The ga the r ed i n fo r ma t ion f ro m e mp i r i c a l s t ud y i s an a l y sed i n t h i s

s t ag e o f t he r e s ea r ch , t hu s t e s t ing t h e hy po th es i s g en e r a t ed f ro m

the l i t e r a t u r e r e v i ew . T h o ug h t he l i t e r a tu r e r ev i e w h as g iven

eno u gh s t r en g t h a n d i n s i g h t o n th e i s su e an d s ub s t an t i a t e s t h e

a rg u men t , i t i s n o t s u f f i c i en t t o a r r i v e a t a c o n c lu s io n in t h i s

r e se a r ch .

The d a t a ob t a in e d th r o ug h th e q u es t io nn a i r e f r o m th e v a r io us

pa r t i c ip an t s w as f ed in to M i c r o so f t E xc e l s p r ead s he e t . T h e

r e s p o n s es w e r e a n a ly s ed f o r s i mi l a r i t i e s a n d d i s s i mi l a r i t i e s i n

p r ac t i c e s an d th i s i n f e ren c e w as u s ed to a r r i v e a t a co mp r eh en s iv e

con c l us io n .

The env i r on me n t a l f a c to r s w er e an a ly s ed wi th s i mp l e ave r ag e o f

t h e d eg r e e o f r e s p o n s e f o r an e l e me n t i n t h e f ac to r s . E a ch e l e me n t

w a s g iv e n a r a t i n g f r o m 1 t o 5 b y th e r e s p o n de n t . T h e n t he r a t in g

o f e a ch e l e me n t b y each r e sp o nd en t w as a dd ed an d f u r th e r d iv i ded

by the t o t a l n u mb er o f r e sp on den t t o ob t a in an av e r ag e r a t i ng o f t h e

e l e men t .

CO N C L U S I O N

The r e s ea r ch me th od o log y ch osen to c a r r y o u t a r e s e a r c h b r in g s o u t

t he d e p t h o f t h e r e s e a r ch , i t s s t r en g th in t h e d ev e lo p me n t o f t h e

r e s e a rch va r i ab l e s , r e co gn i s in g th e f ac to r s w h ich may a f f ec t t h e

r e s e a r c h p r o ces s a nd d ev e l o p ing co n t i ng en cy p l an s to e ns u r e t h a t

t he r e s ea r ch do es n o t l o s e t r ack . H en ce , a s d i s cu s s ed ea r l i e r

hy po th e t i co - d ed u c t ive r e s e a r c h me t h o do lo gy ha s b e en u s ed w i t h

q u a l i t a t i v e an a ly s i s t e ch n iq u es .

T he h y p o th es i s g e n e r a t ed t h r o ug h th e l i t e r a tu r e r e v i ew , ke ep ing i n

mi n d t h e a i m a n d o b j e c t i v e o f t h e r e s ea r c h , w as t e s t e d ag a in s t t h e

e mp i r i c a l r e s ea r ch r e s u l t s , w h i ch p a v ed a w a y to t he c on c lu s io n

r ega rd ing t he r e l a t i ons h ip be t w een t he tw o va r i ab l e s .


48 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

Chapter 4: Data Analysis and Interpretation

4.1 Introduction

T h e l i t e r a t u r e r e v i ew h a s a t t e mp t e d t o p r o v id e w e l l - b u i l t

u n d e r s t a n d in g o f t h e i s s u e a n d s u b s t a n t i a t e s t h e a r g u men t , b u t i t i s

n o t s u f f i c i e n t t o a r r iv e a t a c on c l us io n o n t h i s r e s e a r ch . T h e

ga t h e red in fo r ma t i on f r o m emp i r i c a l s tu dy i s ana ly s ed in t h i s s t a g e

o f t h e r e s ea r c h , t h u s t e s t i ng t he h y po th es i s gene r a t ed f ro m th e

l i t e r a t u r e r ev i ew .

I n o rde r t o l abe l a r e s ea r ch p roce s s q u a l i t a t i v e i nv es t i g a t i on me ans

tha t t h e r e s e a r ch gen e r a l ly a i ms a t un de r s t and in g th e me an i ng o f

hu man ac t io n . T h e b e s t w ay to ex p r es s qu a l i t a t i v e d a t a i s

n o n n u mer i c d a t a i n t h e f o r m o f w o r d s . R a t h e r t h an con t r o l l i n g

va r i ab l e s , qua l i t a t i ve r e s ea r ch i s op en -end ed and se t s up r e se a r ch

op po r tun i t i e s d e s i g n ed to l e ad t he r e s ea r ch e r i n t o u n f o r es e e n a r e a s

o f d i s co v e ry w i th t h e a r e a o r t o p i c o f i nv es t i g a t ion . Q u a l i t a t i v e

inq u i r y beg in s f r o m t h e po i n t o f v i e w th a t i n q u i r y i s a ma t t e r o f t h e

p e r c e p t i o n o f q u a l i t i e s o f s o me o b j e c t o r ev e n t and an a p p r a i s a l o f

t he i r v a l u e . Q u a l i t a t i v e d en o te s q u a l i t y , an in h e r en t o r p he no me n a l

p r op e r ty o r e s s en t i a l ch a r ac t e r i s t i c s o f s o me o b j ec t o r ex pe r i e nc e .

Br oad l y s p eak in g , q ua l i t a t i v e me t h o d s a r e p r o ced u r es i n c l ud in g

un s t r u c t u r ed o p en - en d ed in t e r v i ew , o p en - en d ed q ue s t i o nn a i r e a n d

p a r t i c ip a n t o b s e r v a t i o n t h a t g en e r a t e q u a l i t a t i v e d a t a .

A s men t i o n ed in t h e p r e v i o u s ch ap t e r t h e e l e me n t s o f t he v a r i a b l e s ,

p r i c i ng s t r a t eg y an d e nv i r on me n t a l ch a r a c t e r i s t i c s , h av e b e e n

ado p t ed f ro m t h e r e s ea r ch o f o th e r au th o r s . Th e d a t a co l l e c t io n

s ty l e w i t h r ega rd s t o t he v a r i ou s e l eme n t s ha s b een mo d i f i ed to s u i t

t he n ee d s o f t h i s r e s e a r ch . T he r e s e a r c h to o l ap p l i e d a s b e e n

d i s cus s ed i n de t a i l i n t h e p r ev io us ch ap t e r . F u r th e r t h i s ch ap t e r

de a l s w i t h r e v i ew o f r e s po ns es o f r evenu e man ag er s an d en d e av o u r s

t o h igh l i g h t t h e i r v i ew s pe r t a i n i ng t o t h e i s su e o f t h i s r e s ea r ch .


49 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

4.2 Respondent One

T a b l e 4 . 1 : R e s p o n d e n t o n e ’ s r e s p o n s e t o p r i c i n g s t r a t e g y .

Question 1 When do you use the following pricing methods? Mr Gaurav Chopra (Asst Revenue manager, Taj Lands End Mumbai) Cost Based1 Cost-Plus Method For groups in summers, for packages such as Diwali, New years. 2 Target Return Pricing NA 3 Break-Even Analysis Just as an indication. 4 Contribution Analysis While adjusting market segmentation to get optimal price. 5 Marginal Pricing For Contracts and groups. Competition Based 6 Pricing similar to Competitors or According to the Market’s Average

Prices To set BAR.

7 Pricing Above Competitors To set rates for Club rooms as we consider it to be a premium product. 8 Pricing Below Competitors During off season while bidding for groups. 9 Pricing According to the Dominant Price in the Market To set BAR Customer Based 10 Perceived-Value Pricing Packages 11 Value Pricing Packages and group. 12 Pricing According to the Customers’ Needs Packages and group. Question 2 Why do you use the following Pricing Policies? 1 List Pricing For rack rates, as a government regulation 2 Differentiated Pricing To maximise profits and get optimal market segment mix. 3 Geographical Pricing Not used anymore. May be for conventions. 4 Negotiated Pricing Contracts. 5 Quantity Discounts Groups and contracts. 6 Cash Discounts Early bird rate, last minute rate, extended day rate. 7 Trade Discounts Travel agent, third party websites, Travelocity, Expedia. 8 Loss-Leader Pricing NA 9 Image Pricing Club rooms are priced higher to make a positioning statement. 10 Pure Bundling Packages, unit, third party sites, essentially to drive volumes, may e doe to give

experience. 11 Mixed Bundling Leading hotel world package, to drive volume from the US market. 12 Relationship Pricing Special promotions for your inner-circle members to promote loyalty. 13 Yield Management To maximise on opportunity. 14 Efficiency Pricing For budget hotels where the margins of profit are low.


50 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T a b l e 4 . 2 : R e s p o n d e n t o n e ’ s r e s p o n s e t o e n v i r o nme n t a l c h a r a c t e r i s t i c s .

Question 3 Indicate the influence of External Characteristics while pricing (where 1 = Most Unlikely and 5 = Most likely)

Degree Response

1 Does the existing interest rate formulated by RBI influence my price Most Unlikely 2 Predicted changes in interest rate influence my price Most Unlikely 3 I change my price with the change in GDP Most Likely More saving = more disposable income = more spending power. 4 I change my price with the change in Inflation Most Likely To adjust dollar value. 5 I change my price with the change in growth rates Most Likely More growth = more demand. 6 Does the process that customers adopt in order to evaluate the service

influence my price Most Likely Category pricing

7 A change in value that customers attach to the service influences my price

Most Likely BAR, 3 variable pricing, packages.

8 A change in customers’ personal characteristics influences my price Most Likely Market segmentation. 9 A change in distribution channels that customer’s use influences my

price Most Unlikely Rate parity.

10 A change in customers’ purchase behaviour influences my price Most Likely Seasonal pricing. 11 A change competitors’ price influence my prices Most Likely To be at par with the market we constantly monitor competitors

pricing strategy. 12 A change in intensity of competition among the existing companies

influences my price Most Likely With new players such as Four seasons and Trident, market will

go down and so pricing will change, new market sources. 13 A change in level of governmental intervention influences my price Most Likely With a change in taxation the pricing will be adjusted. 14 A change in existing regulation regarding pricing practices influences

my price Most Likely Depends upon the regulation.

15 A change in the Brand Value influences my price Most Likely If my brand has greater recall value the price go up. 16 A change suppliers’ bargaining power influences my price Likely Based on volumes the prices may go up or down. 17 A change in buyers’ bargaining power influences my price Most Likely Based on volumes the prices may go up or down. 18 A change in threat of new competitors’ entering into the market

influences my price Most Likely New catchment areas will be identified, market segment will be

relooked in to DOSC, BAR. 19 A change in threat from substitutes influences my price Most Likely Depends upon how much influence is exerted, if demand sustains

prices do not change. 20 A change in expected competitive reactions influences my price Most Likely Prices will be adjusted to be competitive in the market; will be

closer to market average.


51 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

In f e r ence

Fr o m th e r e sp o ns e o f M r . G aur av Ch op ra i t i s ev id en t t ha t ho t e l s

ne e d t o h av e a h o l i s t i c a pp r o a c h to p r i c ing . C o s t - bas e d p r i c in g c an

be u se d a s an in d i c a to r i n d e t e r mi n i ng p r i ce s du r i ng l ow de ma n d

seas o n to b us in es s by v o lume . P r i c i n g me t h o d s w o u ld d ep en d o n

the mar k e t i n w h i ch th e f i r m o p e r a t e s an d s i nc e Ta j Land s En d , a

bo u t iqu e ho t e l , op e r a t e s i n a dy na mic mar k e t l i k e Mu mb a i w h ich

con s i s t s o f a l l s e g me n t s o f c l i e n t e l e ( i . e . b us i n es s , l e i s u r e , t r an s i t ,

l on g - s t a y e r s , a i r l i n e c r ew ) i t o b v i o u s tha t t h ey w ou ld h a v e t o

fo l lo w a v e ry dy n ami c p r i c i ng s t r a t eg y w h er e i n t h e vo l u me

bu s in es s i s o b ta in ed by f i l l i n g th e b as e c a t eg o ry f i r s t w i th mar k e t

d r iv en p r i c es an d t he p r e mi u m r ev e n u e i s o b t a in ed b y p r i c in g t he i r

C lu b r o o ms d i s t i n c t ly h ig he r t o ma k e a po s i t i o n s t a t e me n t f o r a

su p e r io r p r od uc t .

Co mp e t i t i o n - bas ed p r i c ing i s u sed in a ma l g a ma t io n w i th o t h e r

p r i c i ng s t r a t eg i e s p r i mar i ly a s a b en ch mar k to s e t t h e BA R ( b es t

av a i l ab l e r a t e s o a s t o b e i n p a r w i th th e co mp e t i t i o n i n t h e mar k e t

and no t t o l o s e ou t on p o t e n t i a l r ev enu e . T h u s i t c an b e in f e r r e d

tha t chan g e in co mp e t i to r s p r i ce w o u l d in f lu en ce th e h o te l s p r i c i ng .

Cu s to mer -b as ed p r i c in g s t r a t egy i s o n l y u s ed w h i l e p ack ag in g o f

p r od u c t s i n - o r de r t o l e t t h e c o n s u me r ex p e r i e n c e v a l u e f o r mon ey .

T he a pp l i c a t io n s o f d i f f e r en t p r i c i n g p o l i c i e s b y M r . G aura v

Ch op r a a r e me n t ion ed i n d e t a i l i n T ab le 4 .1 .

F r o m th e r e s po n se to t he e nv i r on me n t a l ch a r a c t e r i s t i c s i t c an b e

un de r s to o d th a t ch ang e in e con o mi c f ac to r s h av e a s ma l l i n f l u en c e

wh en co mp ar ed to ma r ke t f ac to r s on day to day p r i c ing s t r a t egy o f

ho t e l s .


52 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

4.3 Respondent Two

T a b l e 4 . 3 : R e s p o n d e n t tw o ’ s r e s p o n s e t o p r i c i n g s t r a t e g y .

Question 1 When do you use the following pricing methods? Ms. Pooja Goel (Revenue Manager, Taj President Mumbai) Cost Based 1 Cost-Plus Method More in summer. 2 Target Return Pricing On the basis of demand. 3 Break-Even Analysis NA 4 Contribution Analysis NA 5 Marginal Pricing In case of addition to group booking. Competition Based 6 Pricing similar to Competitors or According to the Market’s Average Prices Weekday, Ad-hoc movements. 7 Pricing Above Competitors Maximise, winters, strong business on books, totally booked. 8 Pricing Below Competitors Low business, summer. 9 Pricing According to the Dominant Price in the Market With sister hotel Taj Mahal Tower. Customer Based 10 Perceived-Value Pricing At all times 11 Value Pricing NA 12 Pricing According to the Customers’ Needs Mostly groups. Question 2 Why do you use the following Pricing Policies? 1 List Pricing For Travel agents. 2 Differentiated Pricing Weekend, weekday time. 3 Geographical Pricing NA, rate parity. 4 Negotiated Pricing Contracted, company rates. 5 Quantity Discounts Events, conferences. 6 Cash Discounts 25% on rack rate for credit card payment (FHRAI members) 7 Trade Discounts Commissionable by 10%. Need to be IATA certified. 8 Loss-Leader Pricing NA 9 Image Pricing For deluxe premium rooms, for suits, high end products. 10 Pure Bundling NA 11 Mixed Bundling During tactical promotions, e.g. Christmas. 12 Relationship Pricing For corporate. 13 Yield Management For slack period. 14 Efficiency Pricing NA


53 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

T a b l e 4 . 4 : R e s p o n d e n t tw o ’ s r e s p o n s e t o e n v i r o nmen t a l c h a r a c t e r i s t i c s .


Degree Response

1 Does the existing interest rate formulated by RBI influence my price Most Unlikely 2 Predicted changes in interest rate influence my price Most Unlikely 3 I change my price with the change in GDP Most Unlikely 4 I change my price with the change in Inflation Most Unlikely 5 I change my price with the change in growth rates Most Unlikely 6 Does the process that customers adopt in order to evaluate the service

influence my price Likely To review the price.

7 A change in value that customers attach to the service influences my price Most Unlikely Taj can command its price. 8 A change in customers’ personal characteristics influences my price Likely Value addition. 9 A change in distribution channels that customer’s use influences my price Most Unlikely Rate parity. 10 A change in customers’ purchase behaviour influences my price Most Unlikely Customers are looking for base category. 11 A change competitors’ price influence my prices Likely To set BAR 12 A change in intensity of competition among the existing companies influences

my price Likely To retain

13 A change in level of governmental intervention influences my price Most Unlikely 14 A change in existing regulation regarding pricing practices influences my

price Most Unlikely

15 A change in the Brand Value influences my price Most Unlikely 16 A change suppliers’ bargaining power influences my price Most Unlikely 17 A change in buyers’ bargaining power influences my price Most Unlikely 18 A change in threat of new competitors’ entering into the market influences my

price Most Unlikely

19 A change in threat from substitutes influences my price Likely To gain volume, to attract business, primarily true for long-stayers.

20 A change in expected competitive reactions influences my price Most Unlikely


54 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

In f e r ence

The r e sp on se o f Ms . P o o ja G oe l i s s i mi l a r t o Mr . G aur av ’ s r e spo n s e

w h er e c o s t i s o n l y a n i n d i c a to r t o d e t e r mi n e p r i c e i n o f f s ea s o n

pe r io d w h er e d e man d in t h e mar k e t i s l o w fo r w h ich h o te l s n eed t o

fo cu s on v o l u me d r i ven b us i ne s s . Ta j P r e s id en t M u mb a i , a b u s i ne s s

h o te l , a l s o f o l lo w s a v e r y d y n a mi c p r i c in g s t r a t eg y . C omp e t i t i o n -

bas e d p r i c in g i s u s ed to ma x i mi s e r ev en ue in ac co r d an c e w i t h

f lu c t u a t in g de man d in t h e mar k e t , hen c e i s c a n b e in f e r r ed th a t

ch a ng es i n ma r k e t w ou ld i n f lu en ce p r i c i ng o f h o t e l s .

T he r e i s no un an i mi ty i n h e r r e sp o n s e t o cu s t o mer b a s e p r i c ing b u t

t he g e ne r a l co mment t h a t s h e mad e in t h e q u es t io n n a i r e i s t h a t

de man d i n t h e ma r k e t i s t he ma j o r d r iv e r o f t h e i r p r i c in g s t r a t eg y ,

e l ab o r a t i ng on w h i ch s h e men t io n ed th a t c h an g e i n p r i c in g i s

pu re ly based o n oc cu pan cy b as i s . T he app l i ca t i o ns o f d i f f e r en t

p r i c i ng p o l i c i e s b y M s . P oo j a G o e l a r e me n t i on ed in d e t a i l i n T ab l e

4 . 3 .

F r o m th e r e s po n se to t he e nv i r on me n t a l ch a r a c t e r i s t i c s i t c an b e

un de r s to o d th a t ch an g e in ma r k e t f a c to r s , u n l ik e e co no mi c f a c t o r s ,

su ch de m an d an d s up p ly have a n e s s e n t i a l r o l e t o p l ay in day t o d ay

p r i c ing .


55 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

4.4 Respondent Three

T a b l e 4 . 5 : R e s p o n d e n t t h r e e ’ s r e s p o n s e t o p r i c i n g s t r a t e g y .

Question 1 When do you use the following pricing methods? Ms. Kinneri Kumar (Revenue Management Executive, Goa Marriott Resort) Cost Based1 Cost-Plus Method NA 2 Target Return Pricing NA 3 Break-Even Analysis NA 4 Contribution Analysis NA 5 Marginal Pricing NA Competition Based 6 Pricing similar to Competitors or According to the Market’s Average

Prices Most of the time, being a competitive market, we need to be rationally priced. Don’t go as per the average market price as it tends to be diluted due to other segments

7 Pricing Above Competitors On Sold out dates, not on a daily basis but close out base category first, 8 Pricing Below Competitors Usually priced below the competitor but not too low, to avoid price wars that plunge

rates too low 9 Pricing According to the Dominant Price in the Market Not Often Customer Based 10 Perceived-Value Pricing All the three are interlinked to a great extent. With the customer becoming smarter

day by day, he not only looks at the perceived value (brands etc) but also the real value he gets. Additionally, hotels vary their rates and add-ons (inclusions) depending on the guest needs.

11 Value Pricing 12 Pricing According to the Customers’ Needs

Question 2 Why do you use the following Pricing Policies? 1 List Pricing For rack rates, as a government regulation 2 Differentiated Pricing When looking at a sold out possibility closer to the date. Sudden upsurge in

bookings. 3 Geographical Pricing NA 4 Negotiated Pricing Qualified accounts which promise to give certain number of bookings in a pricing

year. 5 Quantity Discounts To groups which book more than 10 rooms on any given date. 6 Cash Discounts Never 7 Trade Discounts Not discounts, but better if gets publicity in return. Varies from case to case. 8 Loss-Leader Pricing NA 9 Image Pricing Always plays a part. Is never mutually exclusive of the others 10 Pure Bundling NA


56 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

11 Mixed Bundling When striking a deal with airlines maybe. 12 Relationship Pricing Never 13 Yield Management Sold out dates, Events. 14 Efficiency Pricing Rates are strategized being rationally priced in the market all the time. Maintain rate

efficiency by keeping all the other segments priced at a similar level.

T a b l e 4 . 6 : R e s p o n d e n t t h r e e ’ s r e s p o n s e t o e n v i r o nmen t a l c h a r a c t e r i s t i c s .


Degree Response

1 Does the existing interest rate formulated by RBI influence my price Neutral2 Predicted changes in interest rate influence my price Neutral 3 I change my price with the change in GDP Neutral 4 I change my price with the change in Inflation Neutral5 I change my price with the change in growth rates Likely 6 Does the process that customers adopt in order to evaluate the service

influence my price Most Likely


Most Likely

8 A change in customers’ personal characteristics influences my price Likely 9 A change in distribution channels that customer’s use influences my

price Neutral

10 A change in customers’ purchase behaviour influences my price Likely 11 A change competitors’ price influence my prices Likely 12 A change in intensity of competition among the existing companies

influences my price Likely

13 A change in level of governmental intervention influences my price Neutral 14 A change in existing regulation regarding pricing practices influences

my price Likely

15 A change in the Brand Value influences my price Neutral 16 A change suppliers’ bargaining power influences my price Neutral 17 A change in buyers’ bargaining power influences my price Neutral 18 A change in threat of new competitors’ entering into the market


19 A change in threat from substitutes influences my price Neutral 20 A change in expected competitive reactions influences my price Likely


57 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

In f e r ence

Fr o m th e r e s p on s e o f M s . K in n e r i K u mar i t w as ev i den t t h a t a

r e s o r t h o te l t h a t t a r ge t o n l y l e i su r e c l i en t e l e l oca t ed i n a t ou r i s t

de s t i na t i o n w ou ld neve r c on s id e r co s t w h i l e p r i c in g . S ince t he

de man d o f a c co mmo d a t io n i n s u ch p l a ce s i n h i g h co mp e t i t i o n - b a se d

p r i c i ng p l ay s a v i t a l r o l e i n p r i c i ng s t r a t eg y o f t h e ho te l . Wi t h

r e s p ec t t o cu s to m er -b as ed p r i c in g t h e in pu t g i ven w as t h a t t he

cus t o me r pe r c e iv es v a lu e f o r mon ey mo r e th a n b r an d va lu e a nd th a t

t he ho t e l mus t v a ry t h e r a t e s and a dd - on s dep en d ing on th e g u es t

needs . I t i s i n f e r r ed th a t cu s to mer -b as ed p r i c in g in t o u r i s t

d es t ina t i o n h as a v i t a l r o l e t o p l ay i n h o t e l p r i c i ng . S u ch a h o te l

sh o u l d a l s o t ak e in to co n s id e r a t i o n tha t p r i c e s h ou ld no t o n ly

a t t r a c t t h e g u es t bu t a l s o s u i t t h e mar k e t s o th a t t h e i n f lu x an d

p r o f i l e o f t h e gu es t s d o es no t ge t h i n de r ed b y th e e r r a t i c

f l u c t u a t io n o f r a t e s . T h us th e h o t e l n e ed s to b e r a t io n a l ly p r i ced .

The ap p l i ca t i o ns o f d i f f e r en t p r i c in g p o l i c i e s by K inn e r i K u mar a r e

men t io n e d in d e t a i l i n T a b l e 4 . 5 .

F r o m th e r e s p o n s e e nv i r on me n t a l c ha r ac t e r i s t i c s i t c a n b e

un de r s to o d th a t t h e ch an g e mark e t d y n ami cs o f a t o u r i s t de s t in a t io n

p l ay s a v i t a l r o l e , t h an co mp ar ed to e co no mi c f ac to r s , i n day to day

h o te l p r i c in g .


58 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

4.5 Respondent Four

T a b l e 4 . 7 : R e s p o n d e n t f o u r ’ s r e s p o n s e t o p r i c i n g s t r a t e g y .

Question 1 When do you use the following pricing methods? Mr. Adhiraj Singh (Asst Revenue Manager, JW Marriott, Mumbai) Cost Based 1 Cost-Plus Method NA. May consider in a market scenario where we would be first and only

entrants for a smaller scale project.2 Target Return Pricing Targets are one of a many factors considered while pricing 3 Break-Even Analysis Considered when looking at long term perspective 4 Contribution Analysis NA5 Marginal Pricing NA Competition Based 6 Pricing similar to Competitors or According to the Market’s Average Prices Considered for long-term segments, would vary from Market segment and

hotel positioning efforts. 7 Pricing Above Competitors It is applied while maintaining rationality in price along with hotel

branding / positioning.8 Pricing Below Competitors NA 9 Pricing According to the Dominant Price in the Market NA Customer Based10 Perceived-Value Pricing Used as there is a level of aspiration value attached with the property. 11 Value Pricing Used effectively while packaging products / services. 12 Pricing According to the Customers’ Needs NAQuestion 2 Why do you use the following Pricing Policies? 1 List Pricing For rack rates, as a government regulation 2 Differentiated Pricing To optimise yield per available unit of inventory.3 Geographical Pricing Normally used in need periods to create demand 4 Negotiated Pricing To build customer base 5 Quantity Discounts To build business base enabling us to yield higher rated business on

remaining inventory 6 Cash Discounts Do not provide. Only for Association members. E.g.: FHRAI (As per

member entitlements) 7 Trade Discounts NA 8 Loss-Leader Pricing NA 9 Image Pricing NA


59 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

10 Pure Bundling Generally Avoid 11 Mixed Bundling Generally Avoid 12 Relationship Pricing To build customer base 13 Yield Management To optimise revenues14 Efficiency Pricing NA

T a b l e 4 . 8 : R e s p o n d e n t f o u r ’ s r e s p o n s e t o e n v i r o nme n t a l c h a r a c t e r i s t i c s .


Degree Response

1 Does the existing interest rate formulated by RBI influence my price Unlikely 2 Predicted changes in interest rate influence my price Unlikely 3 I change my price with the change in GDP Unlikely 4 I change my price with the change in Inflation Unlikely 5 I change my price with the change in growth rates Neutral 6 Does the process that customers adopt in order to evaluate the service

influence my price Likely


Likely

8 A change in customers’ personal characteristics influences my price Likely 9 A change in distribution channels that customer’s use influences my

price Most Unlikely

10 A change in customers’ purchase behaviour influences my price Likely 11 A change competitors’ price influence my prices Likely 12 A change in intensity of competition among the existing companies


13 A change in level of governmental intervention influences my price Unlikely 14 A change in existing regulation regarding pricing practices influences

my price Unlikely

15 A change in the Brand Value influences my price Neutral 16 A change suppliers’ bargaining power influences my price Unlikely 17 A change in buyers’ bargaining power influences my price Likely 18 A change in threat of new competitors’ entering into the market

influences my price Neutral

19 A change in threat from substitutes influences my price Neutral 20 A change in expected competitive reactions influences my price Unlikely


60 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

In f e r ence

T he r e s p on s e o f M r . A d h i r a j S in gh i s q u i e t s i mi l a r t o t h e r e s p o ns e

o f M r . G a ur av C h o p r a w he r e he me n t i on s th a t co s t - b as ed p r i c in g

c an be u s ed a s a n in d i c a t o r i n d e t e r mi n i ng p r i c e s d u r in g l ow

d e man d s e as o n t o b u s in es s b y v o lu me . H e p o i n t s o u t t h a t M ar r io t t

I n t e r na t i o na l b e l i ev es in a r a t i on a l p r i c in g p o l i cy an d in d iv i d u a l

p r op e r t i e s u s e t h i s a s t h e p r i mar y g u ide l in e w h i l e t ak in g p r i c in g

de c i s io ns . P r i c in g d e c i s io ns a r e p r i ma r i l y mar k e t b a s ed and t a r g e t

bas ed . T h e ap p l i ca t ion s o f d i f f e r en t p r i c in g po l i c i e s by M r . A dh i r a j

S i ng h a r e men t i on ed in de t a i l i n T ab l e 4 . 7 .

F r o m th e r e sp o ns e t o t h e en v i ro n men ta l ch a r ac t e r i s t i c s an d f r o m

the ab ov e co mme nt i t c an b e u n d e r s to od th a t ch a ng e in ma r k e t

f ac to r s r a th e r t h an e co n o mi c f ac t o r s h av e a s i g n i f i c an t i n f lu en ce a s

co mp a r e d to econ o mi c f a c t o r s , on d ay t o d ay p r i c in g s t r a t eg y o f

ho t e l s .


61 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

4.6 Respondent Five

T a b l e 4 . 9 : R e s p o n d e n t f i v e ’ s r e s p o n s e t o p r i c i n g s t r a t e g y .

Question 1 When do you use the following pricing methods? Mr. Rakesh Singh (Revenue Manager, Hyatt Regency, Mumbai) Cost Based 1 Cost-Plus Method Used in case of packages or F& B promotions2 Target Return Pricing NA 3 Break-Even Analysis NA 4 Contribution Analysis Used in case of group or conference.5 Marginal Pricing Used in case of promotions. Competition Based 6 Pricing similar to Competitors or According to the Market’s Average

Prices This pricing is normally used in the most competitive environment where the unstructured market is to be taped by all the hotels in the vicinity.

7 Pricing Above Competitors The method is used in case of when the hotel is able to command high pricing compared to the market and competition.

8 Pricing Below Competitors In case the demand to the property is not healthy and the forecast is also not healthy then the hotels can opt for reduction in pricing to increase the occupancy.

9 Pricing According to the Dominant Price in the Market NA Customer Based10 Perceived-Value Pricing NA 11 Value Pricing NA 12 Pricing According to the Customers’ Needs Mainly applicable for groups where the pricing is flexible to meet customer demand,

need and budget. Question 2 Why do you use the following Pricing Policies? 1 List Pricing For rack rates, as a government regulation. 2 Differentiated Pricing NA3 Geographical Pricing NA 4 Negotiated Pricing Used for the corporate clientele on a minimum room night guarantee. 5 Quantity Discounts Used for group bookings where the rates may be lower in case of more room night

guarantee the practice is used to maximise the yield. 6 Cash Discounts NA 7 Trade Discounts NA 8 Loss-Leader Pricing NA 9 Image Pricing NA


62 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

10 Pure Bundling NA 11 Mixed Bundling NA 12 Relationship Pricing NA 13 Yield Management Used to get the best value for each and every room sold.14 Efficiency Pricing NA

T a b l e 4 . 1 0 : R e s p o n d e n t f i v e ’ s r e s p o n s e t o e n v i r o nmen t a l c h a r a c t e r i s t i c s .


Degree Response

1 Does the existing interest rate formulated by RBI influence my price Most Unlikely 2 Predicted changes in interest rate influence my price Most Unlikely 3 I change my price with the change in GDP Most Unlikely 4 I change my price with the change in Inflation Most Unlikely 5 I change my price with the change in growth rates Most Unlikely 6 Does the process that customers adopt in order to evaluate the service

influence my price Most Unlikely


Neutral Yes in a way as the customer paying a particular price is based on the services provided by the hotel if the product is good but the services are not great customers do not see a value for money hence are not eager to pay a high rate.

8 A change in customers’ personal characteristics influences my price Most Unlikely NA 9 A change in distribution channels that customer’s use influences my

price Most Unlikely Not really as the hotel believes in price parity and hence all the

distribution channels have same price. 10 A change in customers’ purchase behaviour influences my price Likely Yes as the customers are booking much closer to date and the

booking window is short then the rates are expected to go up closer to arrival date however this also depends on the seasonality and the occupancy factor.

11 A change competitors’ price influence my prices Likely Yes in case of a very competitive environment where the demand is low in the market and the hotels are trying to maintain their market share the drop or increase in the competition pricing effects the pricing decisions.

12 A change in intensity of competition among the existing companies influences my price

Most Unlikely

13 A change in level of governmental intervention influences my price Most Unlikely


63 | P a g e L e h r y , A . ( H ‐ 1 2 7 0 )

14 A change in existing regulation regarding pricing practices influences my price

Unlikely Yes as the regulation like taxes effect pricing as the customer has to pay and additional amount as tax and in case one of the competition is not having tax then the rates provided by your hotel has to be competitive and hence the pricing will be done accordingly

15 A change in the Brand Value influences my price Likely If the brand of the hotel is not very popular among the customer then the hotel is expected to receive less no of repeat guest and hence the target is to capture more unqualified business and first timers hence the rates have to be very attractive

16 A change suppliers’ bargaining power influences my price Most Unlikely 17 A change in buyers’ bargaining power influences my price Likely The rates should be buyable to the end customer or the target

audience in case the price point is higher than the end customer the product is expected not to sell.

18 A change in threat of new competitors’ entering into the market influences my price

Most Likely A new supply in the market does affect the pricing if the demand is constant and the supply is increasing then there are more chances of reduction of rates in order to maintain the market share

19 A change in threat from substitutes influences my price Most Unlikely 20 A change in expected competitive reactions influences my price Likely Yes they do in case of slack season or a high demand season if the

competition is increasing or dropping the rates to a large extent then in order to maintain the market share hotel might have to re look at the pricing strategy

I HM – A An I n qu i r y I n t o ‘ P R I C I N G O F HOT E L S ’

64 | P a g e Leh r y , A . (H ‐1270 )

In f e r ence

T he r e sp o ns e o f M r . R ak e s h S i ng h w h ich i s a l so s i mi l a r t o t h e

r e s p o ns e o f M r . G au r av C ho pr a , s u gg es t s t h a t co s t - b as e d p r i c i ng c an

be u s ed a s an in d i c a to r i n d e t e r mi n i ng p r i c es du r ing lo w d e man d

seas o n to b us in es s by v o lume .

Co mp e t i t i o n - bas ed p r i c in g i s u s ed in a ma l ga ma t i o n w i th o th e r

p r i c i ng s t r a t eg i e s p r i mar i ly t o r e ach ou t t o uns t ruc t u r ed mark e t s so

a s t o n o t t o l o s e ou t o n p o t en t i a l r ev en ue . Th us i t c an b e i n f e r r ed

tha t chan g e in co mp e t i to r s p r i ce w o u l d in f lu en ce th e h o te l s p r i c i ng .

Cu s to me r - b as ed p r i c in g s t r a t e gy i s on ly us e d f o r g r o up s an d

p r o mo t io n in -o rd e r t o l e t t h e co n s u me r ex p e r i en ce v a lu e fo r mon ey .

The ap p l i ca t i on s o f d i f f e r en t p r i c ing po l i c i e s by Mr . Rak esh S i ng h

a r e men t i on ed in d e t a i l i n T ab l e 4 .9 .

F ro m the r e sponse to t he en v i ronm en t a l cha ra c t e r i s t i c s i t c an be

un de r s to o d tha t ch an g e in mark e t f a c to r s have , r a th e r t h an e con o mi c

f ac to r s , a s i gn i f i can t i n f l uen ce on day to d ay p r i c i ng s t r a t egy o f

ho t e l s .


65 | P a g e Leh r y , A . (H ‐1270 )

4.7 Inference of Pricing Methods

Co s t - bas e d : F r o m th e c o l l e c t i v e r e s p o ns e on co s t - b as ed me th o d i t

may b e i n f e r r ed t h a t t h e co s t -b as ed i s mo s t ly us ed a s an ind i c a to r t o

o v e r a l l p r i c i n g s t r a t e g y . I t i s ap p l i c a b l e o n l y w h en th e r e i s l o w

de man d in t he ma rk e t . Th i s me th od can b e bes t pu t t o u s e fo r

p r o mo t io n s , p ack a g es a nd b u lk b us in es s i n t h e f o r m o f g r o u ps .

Co mp e t i t i o n - bas ed : Th i s p r i c ing me t ho d he lp s t he ho t e l t o b e i n - p a r

w i th co mp e t i t o r s i n t he mar ke t s o a s t o a c t a s a b u f f e r t o ma i n t a i n

on es c o mp e t i t i v e s t an c e . I t i s i mp or t an t t o un d e r s t an d th a t t h i s

me t h o d a c t s a s a g u i de to p r i c ing . Co mp e t i t i o n bas e d me th o d i s

f l e x i b l e i n t h a t i t d e mo n s t r a t e s i t s a p p l i c ab i l i t y t o p r i c e mo r e t h a n

co mp e t i t o r s ( cha r g in g a p r e mi u m to mak e a p os i t i o n i ng s t a t e me n t )

du e to an ex ce l l en t p r od u c t an d / o r r i s e i n d ema nd ; a s w e l l a s l e s s

t han co mpe t i t o r s w i th a c hang e in s ce n a r i o s o a s t o c ap tu r e t h e i r

c l i e n t e l e .

Cu s to mer -b as ed : T h e r e s ea r ch e r w o u l d l i k e to i n fe r t h a t cu s to mer -

bas e d p r i c i ng w o u ld b e e f f e c t i ve to o p t i mi s e c us to me r s ’ v a lu e f o r

mo n ey . Th i s may be u sed w h en p r i c ing p a ck ag es o r s t r a t eg i s in g t o

d r iv e in v o l u me b u s in es s i n t h e f o r m o f g r o up s , b ud ge t t r ave l l e r s ,

f a mi l i e s d u r in g o f f s ea s on .

4.8 Inference of Pricing Policies

L is t p r i c i n g : T h e o n l y p u r p o s e th i s p o l i cy s e r v es i s t o ca t e r t o t h e

go ve r n me n t n o r m th a t an o r gan i s a t i o n mu s t hav e p ub l i s h ed r a t e s .

T h i s p r i c e i s g e n e r a l l y o f fe r ed t o f r ee i nd ep en d e n t t r a v e l l e r s w h o

s t ep in to t h e h o t e l fo r t h e f i r s t t i me an d i s u s ua l ly h ig he r t h an t h e

BA R.


66 | P a g e Leh r y , A . (H ‐1270 )

Di f f e r en t i a t ed P r i c in g : M a jo r i t y o f t h e r e s p on d en t s hav e s a id t h a t

t h i s p r i c i n g i s a n o u tco me o f r ev en u e man ag e me n t t a c t i c s i n - o r d e r

t o op t i mi se o n r ev enu e gen e r a t ed f r o m mi c r o - mar ke t s eg me n ta t i o n

wi th e f f i c i en t i n ve n t o ry ma n ag e men t , w h i ch s ub s t an t i a t e s t h e r ev i ew

in th e l i t e r a t u r e .

G e og r aph ic a l P r i c i n g : T h i s p r i c in g c an no t b e p u t t o u s e du e t o t h e

p r ac t i c e o f r a t e p a r i t y .

N e go t i a t e d P r i c in g : T h i s p r i c in g p r a c t i c e may b e u s ed w h e n

con t r ac t i ng r a t e s w i th c o mp an i es w h o p r ov id e th e h o t e l w i th

con s t an t bu s in es s , w h ich s u pp o r t s t h e r ev i e w in t h e l i t e r a tu r e .

Qu a l i t y D i s co un t s : Th i s p r i c in g i s g en e r a l ly pu t t o p r ac t i s e t o d r i ve

in b u lk b u s ine s s i n t h e f o r m o f g r o u p s ( th a t c on f i r m mo r e t h a n 1 0

r o o ms ) , c on f e r e n c e s a nd e ven t s i n o r d e r t o ma x i mis e y i e ld o n

ex i s t i n g i n ven to r y , w h ich con f i r ms th e r ev i ew i n t h e l i t e r a tu r e .

Cas h D i s c ou n t s : M a j o r i ty o f t he r e s po nd en t s f ee l t h a t t h i s t ec h n iq u e

i s p u t t o p r a c t i c e w h en d ea l i ng w i t h g u es t s w h o a r e p a r t o f a l oy a l ty

p r og ra m e . g . F H RA I .

T r a de D i s co un t : M a jo r i ty o f t he r e s po nd en t s h av e d en i ed t he

app l i c a t i o n o f t h i s me th o d .

Loss - Lea de r P r i c i ng : A s pe r un an imi ty in r e sp o ns e s t h i s me t h o d i n

n o t app l i c ab l e t o t h e h o t e l i nd u s t ry .

I ma g e P r i c in g : I t i s i n f e r r e d f r o m t he ma jo r i t y o f t he r e s po n de n t s

t ha t t h i s p o l i cy i s an i mp or t an t f a c to r an d cann o t b e us ed in

i s o l a t i o n to d e t e r mi ne p r i c in g in - o rd e r t o mak e a po s i t i on in g

s t a t e me n t , w h ich i s i n a c co r d an ce to t h e r ev i e w in th e l i t e r a t u r e .

P u r e B un d l in g : T h i s me tho d i s g en e r a l ly av o ided and c a n be u s e d a s

a l a s t r e s o r t t o d r i ve v o lu me b us in es s , w h ich p r o v es th e r e v i e w i n

t he l i t e r a tu re .


67 | P a g e Leh r y , A . (H ‐1270 )

M ixed B un d l in g : F r o m t h e u n a n i mi ty o f t h e ma jo r i t y o f t h e

r e s p o nd e n t s , t h i s po l i c y may be ap p l i ed a s p a ck ag es to d r i v e i n

v o lu me b u s in es s , w h i ch i s i n - sy nc w i t h th e r e v ie w in t he l i t e r a t u r e .

Re l a t io n s h ip P r i c i n g : T h e b en e f i t o f t h i s p r i c i n g p o l i cy i s t o o b t a i n

cus t o me r l o y a l ty a n d i s a p p l i c ab l e f o r r e g u l a r g u es t w h o a r e p a r t o f

a l oy a l ty p ro g r a m w i th t h e h o t e l , t hu s p r ov in g th e r ev i ew in t h e

l i t e r a t u r e .

Y i e ld M a n ag e me n t : T h e u n an i mo u s r e sp o ns e to t h i s p o l i cy a l l ow s

the r e s ea r ch e r t o i n f e r t h a t t h i s t ech n i q u e i s a p p l i e d t o o p t i mi s e o n

p r i c e g i v e n t h e a v a i l a b i l i t y o f t he p r o d u c t , w h ich c o n f i r ms t h e

r ev i ew in t he l i t e r a tu r e .

E f f i c i en c y P r i c i ng : M a jo r i t y o f t he r e s p o nd en t s hav e d en i ed the u s e

o f t h i s po l i cy .

4.9 Inference of Environmental Characteristics

E co no mi c F ac to r s

I t i s o bs e r v ed f r om t h e u n an i mi t y o f r e s p o nses f r o m t h e r e s p on den t s

t ha t w i th chang e in eco no mi c f ac to r s s uch a s i n t e r e s t r a t e , G D P ,

in f l a t i o n , g r o w th r a t e , l ev e l o f g ov e r n men t i n t e r v en t io n an d ex i s t i n g

r eg u l a t i o n r eg a r d i ng p r i c i n g , t h e r e venu e ma n ag er s a r e u n l ik e l y t o

ch ang e t he i r p r i c e s . Th us , i t c an b e in fe r r ed th a t ch ang e i n

e co no mi c f a c to r s hav e a s ma l l r o l e p e r f o r m in d ay to d a y ho te l

p r i c ing .

M ar k e t F a c t o r s

F r o m th e r e s p o n s e s o f t h e c h an g e i n ma r k e t f a c to r s i t i s o b s e r v ed

tha t t h e r e s p on d en t s a r e l i k e ly to mo d i fy th e i r p r i c in g w i th ch an g e

in ma r k e t f a c to r s . T hu s i t c an b e i n f e r r ed t ha t change i n ma rke t

f ac to r s hav e an i mp or t a n t r o l e t o p l ay i n day to d ay p r i c i ng h o te l

p r i c ing .


68 | P a g e Leh r y , A . (H ‐1270 )

4.10 Conclusion

T h i s ch a p t e r h as r e f l e c t e d t h e q u i n t e s s en ce o f t h i s r e s e a r ch an d

gen e r a t e d s o me i n s ig h t f u l r e s u l t s , w h ich h av e b e e n ex a mi ne d

ag a in s t t h e o b je c t iv es o f t h i s r e s e a r c h i n - o r d e r t o c o mpr eh en s i ve ly

con c l u d e . T o g a t h e r t h e n e c es s a r y in f o r ma t i o n o n t h e v a r i a b l e s o f

t h i s r e s ea r ch , t he r e s ea r ch e r u s ed p e r s o n a l ly ad mi n i s t e r ed

qu es t io n n a i r e . T h e r e sp o ns e w as g a t h e r ed by me e t in g w i th s o me o f

t he r e v e nu e man a g e r s , w h i l e t h e o th e r r e s po n s es , du e to t i me

con s t r a in t s , w er e s en t e l ec t ro n i ca l l y by t he r e sp on den t s .

The qu a l i t a t i ve an a ly s i s ha s be e n s i g n i f i c an t ly s u c c es s f u l t o

d e t e r mi n e t h e r e l a t i o n s h ip t h a t ch an g e s in e n v i r o n me n ta l

ch a ra c t e r i s t i c s h av e an e f f ec t o n t h e day to day p r i c ing o f ho t e l

r o o ms . T ho u gh e c on o mi c f a c to r s co n t r ib u t io n t ow a r d s th e e f f e c t o n

p r i c i ng w a s p e r c e i v ed t o b e s ma l l , n ev e r t h e l e s s i t d i d p r o v ide t h e

r e s e a r c h e r w i th ev id e n c e o f h ow i t i s n eg l e c t ed by r ev en u e

man ag er s , w h ich w i l l b e f u r th e r d i scus s ed i n t he nex t ch a p t e r . T h e

r e s e a r c h e r w as p l e as e d to ob ta i n r e s po n s es w h ich d i r ec t l y p ro ve d

tha t ch an ges i n en v i ro n men t a l ch a rac t e r i s t i c s hav e an e f f ec t o r

i n f lu en ce ho te l p r i c in g . T o e f f ec t i v e l y cap t u re t h i s v i ew i t w a s

neces s a ry t o hav e an i n -dep th ana ly s i s t ha t va l i d a t e s t he a rgu me n t s ,

du r i ng th e i n i t i a l ph as es o f t h i s r e s ea r ch , w h ich i nv o l ve d t h e

p r oces s o f i s su e i d en t i f i c a t ion , r e l ev an t l i t e r a tu r e r ev i ew an d

iden t i fy in g th e r e s ea r ch me t ho d .

Fo r t h e b en e f i t o f t h e r ead e r t h e r e se a r che r ha s been ex t r e me ly open

and exp r es s iv e i n h i s an a ly s i s o f t h e d a t a a nd h as s t a t e d h i s

ob s e r va t i on s in a s i mp le ma n n er .


69 | P a g e Leh r y , A . (H ‐1270 )

Chapter 5: Conclusion and Implication

5.1 Introduction

T hi s r e s e a r ch a t t emp t e d to ex a mi n e h o t e l s , t h e i r p o in t o f v i ew o n

the co n c ep t o f p r i c ing a n d h ow th ey p r i c e r ig h t . I t has be e n

ob s e r ved th a t p r i c in g s t r a t eg i e s a r e i n f l ue nced by a s e r i e s o f

i n t e r n a l a nd ex t e r na l f a c t o r s . T h i s c on cep t h as b ee n a r g ue d an d

r e s e a rch e d by man y r e s ea r ch e r s e s pe c i a l ly G eor ge J . Av lo n i t i s an d

K o s t i s A . I n do u na s w ho h av e c on du c t e d e x ten s ive r e s e a r c h o n

p r i c i ng i n t he G re ek s e r v i c e s e c to r ( f ro m w hi ch th i s d i s s e r t a t i on i s

i n s p i r ed ) , an d t ak i ng th e r e s ea r ch fu r t he r b y d e t e r mi n i ng w he th e r

o r gan i s a t io ns ’ do r e s po nd to ch an g e i n en v i r o n men t a l

ch a ra c t e r i s t i c s w i t h ch an ge in p r i c in g .

5.2 Research Overview

T he r e s e a r ch s t a r t ed w i th a b ig p i c t u r e o f p r i c in g in t h e h o te l

i nd u s t ry . O n r ev i ew o f ex i s t i n g l i t e r a tu r e i t w as f o un d n o t mu ch

r e s e a r c h w a s c on d uc t ed p e r t a in i ng t o t h i s s u b je c t an d t he r e w a s

abs o lu t e l y n o p ub l i s h ed r e sea r ch p e r t a i n t o t h e In d i an ho s p i t a l i t y

i nd u s t ry . G eo r g e J . A v l on i t i s an d K o s t i s A . I n do u nas , D e p a r t men t o f

M ar k e t in g an d C o mmu n ic a t io n s , A th en s U n iv e r s i ty o f E con o mi c s

and Bu s i n es s , A t h en s , G re e c e , h av e c a r r i ed o u t w i d e - r a n g i n g

r e s e a rch i n t h e a r e a o f p r i c i n g in t h e G r eek s e r v i c e s e c t o r , b u t n o n e

sp ec i f i c t o t he h os p i t a l i t y i nd us t ry . Th i s g av e t he r e s ea r ch e r a b r o ad

a r e a t o l o ok a t f o r t h e pu rp o se o f c a r r y i n g o u t a n ac a d e m i c r e s e a r ch .

O n f u r th e r i n ves t i g a t io n th e r e s e a r c h e r s tu mbl ed up o n th e q u e s t io n

tha t h ow d o thes e h o te l s g e t t h e i r p r i c in g s t r a t egy r igh t . Th i s l ead

the r e s e a r ch e r t o t h ou g h t p r o ces s o f i mp o r t an ce o f p r i c e . H o te l

i nd u s t ry i s ma in l y cha r ac t e r i s ed by co s t an d p e r i s h ab i l i t y o f i t s

p r od u c t a n d s e r v i c es . A h o t e l r oo m t h a t i s u n s o ld a p a r t i cu l a r n ig h t

c an no t b e s u bs eq u e n t ly accu mu l a t e d t o b e so ld a t a l a t e r d a t e .


70 | P a g e Leh r y , A . (H ‐1270 )

Henc e i t i s i mpo r t an t fo r t h e h o t e l t o s e l l i t s r oo ms a t an o p t i ma l

p r i ce t o max i mi s e i n p r o f i t an d f o r i t s l o ng - t e r m s u s t a i n ab i l i t y . T h i s

l a id t h e f o un da t io n f o r t he r e s ea r ch e r t o co n cep tu a l i s e t h e i s s u e .

T he q u es t i on h e r e w as h ow y o u d e t e r mi n e o p t i ma l p r i c e . R es ea r c hes

and th eo ry ind ic a t ed th a t an o r gan i s a t io ns in t e r n a l f i n a nc i a l

con d i t i o n and ex t e r n a l e nv i r o n men t i n f lu e nc es th e o r g an i s a t io n i n

i t s p r i c i ng p r ac t i c e . In t e r n a l co nd i t i on s s u ch a s co s t s , w o rk in g

c ap i t a l an d o r g an i s a t io n a l g o a l s by f a r co n t r o l l ab l e by t he

o r gan i s a t io n i t s e l f , w he r ea s , ex t e r na l en v i r on me n t i s u np r e d i c t a b l e

and u nco n t r o l l ab l e by an o r gan i s a t io n . C h a n g es in t he e x te r n a l

env i r on me n t i s o f t en r ap i d a nd i n - o r de r t o s t ay ah e ad o f t h e

co mp e t i t i on t h e o r g an i s a t io n n eed s t o be aw ar e o f t he ch an g es in t h e

ex t e r na l en v i ro n men t i n -o r de r t o t ap th e r i gh t r e s o u r ce ( ma rk e t

s eg men t ) , an a ly s e t h e cu r r en t and fu tu re r eq u i r e men t s o f t h e ma rk e t

and d e l iv e r i t a t an op t i ma l p r i ce so a s t o ma x i mi se t h e i r r evenu e . I f

an o r gan i s a t io n do es n o t k eep t r ack o f t h e ch an g es in t he

env i r on me n t i t f u n c t io n s , t h en so me ex t e rna l f a c to r s can pos e a

t h r ea t t o a bu s in es s . T h r o ug h th i s p r o c es s t h e r e s e a r c h e r i d e n t i f i ed

and con c e p t u a l i s e d t h e i s s u e t o b e r e s ea r ch ed u p o n .

Af t e r i d en t i f y in g th e i s s u e a r ev i ew o f ex i s t i n g r e l ev an t l i t e r a t u re

w a s p e r f o r med . T h e l i t e r a t u r e b eg a n w i th t h e i n t r o d u c t i on o f t h e

p o p u la r t a c t i c t h a t h o t e l s u s e to p r i c e i n a d y n a mi c ma r k e t ,

‘R e v en u e m a na gem en t ’ . R ev en ue man ag e men t a s exp l a in ed by

va r io us au th o r s i s p r ed i c t i ng cu s to mer d e mand and op t i mi s in g o n

p r i ce g iv en th e a va i l ab i l i t y o f p rod uc t . Th e e s sen c e o f r ev en u e

man ag e men t i s p r i c e d i s c r i mi n a t io n i . e . s e l l i n g th e s a me p r o du c t o r

s e rv i ce a t d i f f e r en t p r i c es t o d i f f e r en t cu s to me r s ba sed on t h e r ea l -

t i me d eman d in t h e ma r k e t . R e venu e man ag e men t i nc o r p o r a t e s

ma r k e t in g an d e co no mi c s a s i t i s a n e w t e c hn iq ue to ma n a g e de ma n d

in t h e ma r ke t an d en h a nc e r e v e nu e . Rev en u e ma n a g e men t d e a l s w i th

the k ey i s s u e o f r i gh t p r i c e , p r i ce op t i mi s a t i on , an d mi c ro - ma rk e t

s eg me n t a t i o n . T h r ou g h th i s d i s c i p l i n e t h e r e s e a r c h e r h a s c r a f t ed o u t

t he i mpo r t an c e o f p r i c i ng r i g h t i n t he h o t e l i n d u s t ry .


71 | P a g e Leh r y , A . (H ‐1270 )

S i nce r ev en u e man a g e men t i nv o l v e s b o th mar ke t in g an d eco n o mi c s ,

t he r e s ea r ch e r r ev i ew s th e l i t e r a tu r e o f p r i c i n g bo th t h e d i s c ip l in e .

The r e s ea r ch e r h as r ev i ew ed th e w or k o f S kou ra s e t a l . ( 20 05 ) w h o

has de a l t w i th t h e co n c ep t o f p r i c i ng f o r m th e p o i n t o f v i e w o f

e co no mi c s an d ma r k e t i ng . T h e r e s e a r c h r e vo lv ed a r ou n d p r ov id in g

the p e r s pe c t iv es o f B u y er s r e s p on s e t o p r i c in g , F i r m’ s d e t e r mi n a t io n

o f p r i c in g an d I nd us t ry -E cono my W ide r o l e o f p r i c in g .

I n buy e r s r e sp on se t o p r i c in g , e con o mics co n s ide r s t h a t bu y e r s a r e

r a t i o n a l a n d th e i r r e s p o n s e t o p r i c in g i s an o u t co me o f t h e i r u t i l i t y -

max i mi s a t io n u n d e r co n s t r a i n t s . W h ere as mar k e t in g h as a

beh av io u r i s t ap p r oa ch to p r i c in g and h as op en ed i t s e l f t o i n s ig h t s

f r o m e mp i r i c a l da t a an d ps y ch o l og y . M ar k e t in g a pp r oa c h to p r i c in g

i s p r ac t i c a l , f unc t i ona l and e l a s t i c , whe re a s e cono mi cs i s s tuc k t o

i t s p r in c i p l e o f u t i l i t y - max i mi sa t i on w h ich n o t ba sed on e mp i r i ca l

da t a f r o m p s y ch o lo gy . T he r e a r e v a r io us a pp r o ac hes t o b uy e r s ’

r e s p o ns e to p r i c in g , f r o m mar k e t in g p e r s pec t iv e , d i s c u s s ed in d e t a i l

i n t h e l i t e r a t u r e r e v i e w .

F i r m’ s hav e b e e n s tu d i e d f o r a do p t in g bo th e co n o mi cs an d

mar k e t in g p e r s pec t iv es o n p r i c i ng . E co no mi c s t a lk s ab ou t p r i c i n g in

t he l i g h t o f i mp e r f e c t c o mp e t i t i o n , i . e . mo n o p o ly , o l i g o p o ly an d

mo n o po l i s t i c co m pe t i t i on . T h i s v i e w on p r ic i ng i s c o n t r ad i c t ed by

Ha l l and H i t ch t h r o ug h th e i r s t udy th a t o r gan i sa t i o ns d o no t t a rg e t

p r o f i t max i mi s a t io n bu t bas e t h e i r p r i c e on co s t b as i s . E co no mi cs

con s id e r s p r i c i ng to t h e e s s e nc e o f b us i ne s s d e c i s io n i n - o r d e r f o r

p r o f i t ma x i mi s a t io n , w h i l e ma rk e t in g r ega rd s p r i c ing a s i mp or t an t

a s t h e o t h e r co mp o n en t s o f t h e mar k e t in g mi x an d i s beh av io u r i s t i n

app r oach . Eco n o mi cs i s s up p or t ed by th e f a c t t h a t t he r e i s n o

d i s c r ep an cy b e tw e en gen e r a l eq u i l i b r i u m th eo ry a nd f i r ms ’

de t e r mi n a t io n o f p r i c es e x c e p t o n th e b as i s o f p r o f i t max i mi s a t i on .

U n d er In du s t r y - Eco n o my w id e r o l e o f p r i c es ma r k e t in g h as

abs o lu t e l y no th in g to co n t r i bu te i n t e r ms o f p r i c in g .


72 | P a g e Leh r y , A . (H ‐1270 )

U n d er in du s t r i a l e co no mi c s , o r g an i s a t ion ap p r o ach t o p r i c in g i s

d e t e r mi n ed o n th e u n d e r s t a n d in g o f h o w th e n a tu r e o f co mp e t i t i o n

a f f ec t s p r i c in g b eh av i ou r an d i s n o t ev a l u a t ed a t an o r gan i sa t io n

l ev e l . E c on o my w id e a d d r e s s es p r i c in g un d e r tw o ap p r o a ch es ;

gen e r a l eq u i l i b r i u m a n a l y s i s an d macr o e con o mi c s . I n gen e r a l

equ i l i b r i u m a n a ly s i s p r i c e s a r e d e t e r mi n ed a f t e r t h e eq u i l i b r iu m

p r i ce i s s e t . Mac roecono mi cs i s e mp i r i c a l l y o r i en t ed wher e t he

de t e r mi n a t io n o f p r i c e t ak es p l a c e t ak in g in to c on s id e ra t io n

con s u mp t io n , i nv es t men t , t h e r a t e o f i n t e r e s t , i n co me an d

e mp lo y men t .

Af t e r r ev i ew in g t h e l i t e r a t u r e o f p r i c in g i t w as ev id en t t h a t an

o r gan i s a t io ns ’ p r i c ing i s p r i ma r i l y d ep en d e n t o n p r o ces s es b y w h ich

p r i c e s a r e de t e r mi ned and b eh av iou ra l ex a mi n a t io n o f i s su es s u ch a s

p r i c i ng ob je c t iv e s , p r i c in g me t h o d s f o l l ow ed ( i . e . cos t - b as ed ,

de man d- b a s ed a nd co mp e t i t i o n - bas ed ) , t he p r i c i ng po l i c i e s ad o p t e d

( i . e . l i s t p r i c in g , n eg o t i a t e d p r i c i n g , geog r a ph i c a l p r i c in g , p r i c e

bu nd l ing e t c . ) .

F o l l ow in g t h e t h o ug h t , t h e r e s e a r ch evo lv ed to e s t ab l i s h t h e

con n ec t i o n o f ba rg a in in g t o p r i ce , w h ich ex p la in s t h a t mor e th a n

on e p r i c e ex i t s i n t he mar ke t d u e to b a r ga in ing i . e . t h e

u n w i l l i n g ne s s o f r a t i o n a l b uy e r s t o p a y mo r e th an t h e p r e v a i l i n g

p r i c e in t h e ab s enc e o f ex t r ao r d ina ry c i r c u ms ta n c es . A f t e r w h i ch t h e

de t e r mi n an t s o f b a r g a in in g po w er w er e d i s cu s s ed a s f o l lo w s ; M a r k e t

s i z e , L e v e l an d t r e nd o f d e man d , P e r i s ha b i l i t y , F i nanc ia l r e s o u r c e s

o f t he p a r t i c ip an t s an d b a r ga in ing s k i l l an d e f f ec t i venes s o f buy e r

and se l l e r . B a r ga i n i ng s h ou ld n o t b e mis t a ke n a s a k e y d e t e r mi na n t

o f p r i c in g a s i t i s o n l y a co n t ro l l i ng f ac t o r . P r i c e b a r g a i n may o ccu r

i n b as i c o p e r a t i on a l en v i r o nme n t f a c e d by th e b uy e r an d s e l l e r .

Fu r the r t h e r e s ea r ch e r evo lv ed t he l i t e r a tu r e a ro u nd p r ov id in g a

c l a s s i f i c a t io n o f p r i c i n g me t h o d s , p r i c i n g p o l i c i e s an d f ac to r s

a f f ec t in g th e m.


73 | P a g e Leh r y , A . (H ‐1270 )

Fr o m t h e r ev i ew o f t h e l i t e r a tu r e i t w as ev i den t t o t h e r e s ea r ch e r

t ha t o r g a n i s a t io n s d e t e r min ed th e i r p r i c es on th e b eh av io u r a l

ex a mi n a t i on o f i s s u es s u ch a s p r i c i n g o b j ec t iv es , p r i c in g me t h o ds

f o l lo w ed ( i . e . co s t - b as ed , d e man d - b a s ed a n d c o mpe t i t i o n - b as ed ) , t h e

p r i c i ng po l i c i e s ad op t ed ( i . e . l i s t p r i c in g , n ego t i a t ed p r i c i ng ,

geo g r a ph ic a l p r i c in g , p r i c e bu n d l i ng e t c . ) , f a c to r s t h a t a f f ec t

p r i c i ng ( s e r v i c e , o r g an i s a t i o n a l an d e n v i r o n me n ta l ) .

Bo th co s t ( s e r v i c e ) and o r gan i sa t i o n a l f ac to r s a r e b y f a r

con t r o l l ab l e , hen ce th e r e s ea r ch e r n a r ro w ed d o wn h i s r e s ea r ch t o

ch ange i n en v i ronmen t a l cha r a c t e r i s t i c s an d i t s i n f lu en ce on h o te l

p r i c i ng . F o l l ow in g th e th o u gh t , t h e r e s e a r ch ev o l v ed t o e s t ab l i s h t h e

hy p o th es i s w h ich i s s t a t e d i n ch ap t e r 3 .

To e mp i r i ca l l y ex a mi n e t h e hy po th es i s g en e r a t ed k eep in g in mi n d

the a i ms an d o b j ec t iv e s o f t h e d i s s e r t a t i on , t h e r e s ea r ch e r dev e l o p a

qu es t io n n a i r e w h i c h w as co ns t r u c t ed us in g p r i c in g me t h od s , p r i c in g

p o l i c i e s a n d e n v i r o n me n t a l ch a r ac t e r i s t i c s a d o p t ed f o r m t h e

r e s e a r c h o f v a r i ou s a u t ho r s . T he r e s p on d en t c ho s en w e r e r ev en u e

man ag er s a s t h ey h av e a go od k no w ledg e a bo u t t h e b r o ad a r e a un d e r

wh ich t he r e s e a r ch i s con d uc t ed and t he i r j ob r evo lve a r ound t he

sa me b r o ad e r p e r s p e c t iv e .

The da t a was ana ly sed qua l i t a t i v e ly an d t he r e sea r ch e r has p rov ided

h i s i n fe r en ce in d e t a i l i n ch ap t e r 4 . F ro m th e d a t a ana lys i s i t h as

eme rg ed t h at e n v ir on m en ta l ch a ra c te r i s t i c s ha v e a n e f f ec t o n d a y

to d a y p r ic in g o f h o t e l s . T hu s , h ypo th es i s i s a ccep t ed .

5.3 Implications

I t i s f o l l owed f rom the r e s ea r ch t h a t en v i ronmen t a l cha r ac t e r i s t i c s

hav e an un eq ua l e f f e c t on d ay to d ay p r i c ing o f ho te l s . T h e

s i gn i f i can ce o f t h i s f i nd in g w as u nde r s to od d u r in g q ua l i t a t i v e d a t a

an a ly s i s .


74 | P a g e Leh r y , A . (H ‐1270 )

T he un an i mi t y o f r e s po n s e f r o m th e r e s p o nd e n t s l e ad t h e r e s e a r ch e r

t o th e in f e r en ce th a t ch ang e in e con o mi c f ac to r s , i n co mp ar i s on w i t h

mar k e t f a c t o r s , h av e a s ma l l r o l e t o p l a y i n d e t e r mi n i n g d ay t o d ay

p r i c i ng o f h o te l s .

Fo r ex ample : Wi th t he i nc r ea se i n GD P , o r g r ow th r a t e i n t he

cou n t ry i t l og i ca l l y me an s t h a t t h e r e i s ap p r ec i a t io n o f t he cu r r en cy .

D u e to w h i ch t h e r e i s mo r e sav i n g s w i th t he c on s u me r , w h i ch i s

equ a l t o mor e d i s po s ab l e i n co me a n d w h ich i n t u r n in c r e as e s t h e

sp en d ing po w er o f t h e co nsu mer .

I t i s ev i d en t f ro m t h e ab ov e un de r s t and in g tha t r ev en u e man ag er s

sh o u l d g i v e e qu a l i mp or t a n c e to c hang es i n e cono mic f ac to r a s i t

w i l l p ro v ide th e m w i th a b e t t e r i n s ig h t t o p r i c in g b o th f ro m

e co no mi c s a nd mar k e t ing p e r s pe c t i v e .

5.4 Scope for Further Research

Every r e sea r ch i s s t r uc tu r ed t o a dd r e s s a p a r t i cu l a r i s su e on min d

and c i r c l e s a r ou n d t he v a r i a b l e s i t i d en t i f i e s an d f o cu s es o n

ex a mi n in g t he a r g u men t ’ s va l id i ty , s u i t ab i l i t y an d accep t ab i l i t y .

Th i s r e s e a r ch h a s i nves t i ga t ed t he change i n env i ron men ta l

ch a ra c t e r i s t i c s t o t h e e f f ec t i t h as o n p r i c i ng s t r a t egy o f ho te l s ,

t he r e i s a l o t o f s c o pe f o r f u r th e r r e s e a r ch r e l a t in g to a s t udy o f t h i s

na t u r e . S o me o f t h e a r e a s o f f u r th e r r e s e a r ch :

F ur th e r r e s e a rch can d e lv e i n to p r i c i ng o f o the r r ev en u e

gen e ra t in g a re as s u ch a s F o od and Bev er ag e , S p a e t c .

F ur th e r r e s e a r ch c a n co nc e n t ra t e o n f i n d in g w h i ch ma c r o -

e co n o mi c f ac to r i n f lu en ces p r i c ing o f h o t e l s .

F ur th e r r e s e a r ch c an b e c a r r i ed b y co nce n t r a t ing o n p r i c in g

dep end in g on the S BU .


75 | P a g e Leh r y , A . (H ‐1270 )

Bibliography

Books

Cr o ss , R . G ( 1 99 7) R e v en u e M a n a g em e n t : H a r d co r e T a c t i c s f o r

M a r ke t D o m in a t io n , I nd ia ; U n iv e r s i t y P re s s LTD .

D ew et t , K . K an d V ar ma , J .D . ( 20 05 ) E l e m e n t a r y E co n o m i c

T he or y , N e w D e l h i ; S . C h a n d an d C o mp an y .

K asav an a , M and Bro o ks , R ( 1 996 ) Fron t O f f i c e Procedures ,

Ed uc a t io na l In s t i t u t e o f A H M A .

K ot l e r , P , B o w en , J an d M ak en s , J ( 19 96 ) M a rke t i n g f o r

H os p i ta l i t y an d T o u r i s m , I nd ia ; P e a r s o n E d u c a t i on .

Lo ve lo ck , C .H . ( 1 99 6) S e r v i ces M a r ke t i n g , 3 r d ed . , P r en t i c e -

H a l l , N J ; U p pe r S ad d l e R iv e r .

N ag l e , T . T . a nd H o l de n , R . K . ( 20 0 6) T he S t r a t eg y a n d T a c t i c s o f

Pr i c ing , I nd ia ; P e a r s o n E d uc a t io n .

S eka ran , U . ( 1992 ) R es e a r ch M e t h o d s fo r B u s in es s : A S k i l l

Bu i ld in g Ap pr o ach , J o hn W i ley & S on s .

N y k ie l , D r . R . ( 19 97 ) M a rk e t i n g i n t h e h o s p i ta l i t y I n d u s t r y ,

Ed uc a t io na l In s t i t u t e o f A H M A .

D on ag hy , K . , M a c h mah on - Be a t t i e , U . and M c D ow e l l , D . ( 1 9 97 )

Y ie l d M a n ag em en t S t ra t e g i e s f o r t h e S er v i c e I n d us t r i e s , Lond on ;

I n g o ld an d Y eo ma n , Cas e l l .

Artic les

A vl on i t i s , G . a nd I nd o un as , K . ( 2 005 ) ‘P r i c i ng o b je c t iv e s an d

p r i c ing me t h o ds i n t he s e r v i ce s s ec t o r ’ , J ou r n a l o f S e rv i ce s

Ma r ke t in g , 1 9 / 1 , 4 7 –5 7 .

A vl on i t i s , G . an d I n do u na s , K . ( 2 006 ) ‘H ow a re p r i ce s s e t ? An

ex p l o r a to ry inv es t i ga t io n i n t he G r e ek s e r v i c es s e c t o r ’ , Jo ur n a l

o f P ro d uc t & B ra n d M a n ag em en t , 1 5 / 3 , 20 3– 2 13 .


76 | P a g e Leh r y , A . (H ‐1270 )

A vl on i t i s , G . a nd I nd o un as , K . ( 20 06 ) ‘P r i c i ng p r a c t i c es o f

s e r v i c e o rg an i z a t i o n s ’ , Jo ur n a l o f S er v i ces M a r ke t ing , 2 0 /5 , 3 46 –

35 6 .

A vl on i t i s , G . an d I nd o un as , K . ( 20 0 7) ‘A n e mpi r i c a l ex a mi n a t io n

o f t he p r i c ing po l i c i e s an d t he i r an t e c e d e n t s i n t h e s e r v i c e s

s ec t o r ’ , E u r o pea n Jo ur n a l o f M ar k e t in g , V o l . 4 1 N o . 7 /8 , pp .

74 0 - 7 64 .

A vl on i t i s , G . , I nd ou n as , K . , and G o un ar i s , S . ( 2 0 05) ‘ P r i c in g

ob j e c t i v e s ove r t h e s e rv i c e l i f e cy c l e : so me emp i r i c a l ev id en ce ’ ,

E u r op ea n Jo ur n a l o f M a r k e t ing , V o l . 3 9 N o . 5 /6 , p p . 6 9 6 - 71 4 .

F in ch , J .H . , B ec h e r e r , R . C a nd C a s av a n t , R . ( 19 9 8) ‘A n o p t i on -

bas ed ap p r o ach f o r p r i c in g p e r i s h a b l e s e r v i c es a s s e t s ’ , T h e

Jo urn a l o f Se rv i ce s M arke t in g , v o l . 1 2 no . 6 , pp . 4 73 - 4 8 3 .

M ax w el l , S . ( 1 999 ) ‘ B ia s ed a t t r i bu t i on s o f a p r i c e ch an g e

in c r eas e : e f f ec t s o f cu l tu r e an d g en de r ’ , Jo urn a l o f Co n s umer

Ma r ke t in g , V o l . 1 6 N o . 1 , p p . 9 - 2 3 .

M oy er , R . ( 1 97 1 ) ‘ A ba r g a in th eo r y o f p r i c in g ’ , E u r op e a n

Jo ur n a l o f Ma r ke t i ng , V o l . 5 N o . 4 .

S ko ur as , T . , A v l on i t i s , G . a nd I nd o un as , K . ( 2 0 05 ) ‘E con o mi c s

an d mar k e t ing o n p r i c in g : ho w an d w hy d o the y d i f f e r? ’ , J ou rn a l

o f P ro d uc t & B ra n d M a n ag em en t , 1 4 / 6 , 36 2– 3 74 .

T u ng , W . , C ap e l l a , L .M . an d T a t , P . ( 1 99 7 ) ‘ S e r v i ce p r i c in g : a

mu l t i - s t e p sy n th e t i c ap p r oach ’ , T h e J ou r na l o f Se r v i ce s

Ma r ke t in g , V o l . 1 1 N o . 1 19 9 7 , p p . 53 - 65 .

Documents

An Inquiry Into Pricing Of Hotels