The Internal And External Company Factors Marketing Essay

Published Date: 23 Mar 2015

The goal of the marketers of the hotel is to find the correct price to maximize the profits and the demand for the hotel. The final price for a product is affected by many factors internal and external company factors. Internal are the factors which, when setting price, the hotel's marketers must take into consideration because are the result of company decisions. These factors are controllable by the hotel and can be altered. However, while the hotel may have control of the internal factors, making a quick change is not realistic. For example, the price of the product may depend on the productivity of the hotel. The increasing productivity can decrease the costs of producing each item. In this case the marketers can lower the price of the product. The external factors are several influencing factors that they are not controlled by the hotel but will affect pricing decisions.

Internal Factors:

Marketing Strategy: This strategy concerns to the decisions that marketers make to assist the hotel satisfy its target market and manage its business and marketing objectives. The price is a key marketing mix decisions. Since all marketing mix decisions must work together, the final price of a product will be affected by how the other marketing decisions are made. For example, marketers selling high quality rooms would be expected to price their rooms in a range that will add to the perception of the room being at a high-level.

Costs: For the hotel, the starting point for setting a price of a product is to determine the cost to get the product to the guests. The price that the guest pays must be above the cost of producing a good or delivering a service. If the price is lower the hotel will lose capital. When marketers analyzing the cost, they consider all costs needed to get the product to market. For instance, purchase cost, production cost, marketing and distribution cost etc. these costs are divided in two categories, the fixed costs and the variable costs.

- Fixed Costs: The fixed costs represent costs that are not affected by the level of production or sales. For instance, for a hotel that has just built a new facility, whether they have 100% occupancy or 20% they will still need to pay to the bank the monthly mortgage for the building.

- Variable Costs: variable costs are the costs that are directly connected with the production and sales of products and they change depend on the level of production or sales changes. These costs involve costs of items that are either components of the product for example linen, beverages etc. or are directly associated with creating the product for example electricity or telephone costs.

Marketing Objectives: The decisions of the marketing are affected by the overall objectives of the hotel, while all the decisions work to achieve these objectives. Pricing decisions are influenced by objectives set up for the marketing functional area. Price is vital for four key objectives. In most cases, one of these objectives will be followed, though the marketer who has different objectives for different products. The marketing objectives affecting price include:

Return on Investment. The hotel may has as a marketing objective the requirement that the products reach a certain percentage return on the hotel's spending on marketing the product. The level of return will help marketers determine appropriate pricing levels in order to meet the return on investment objective.

Cash Flow. The hotel may request to set prices at a level that will at least cover product purchase, production and marketing costs. For instance, this can be made in a new hotel in order to introduce itself in market. This objective allows the marketer to ensure hotel's profitability.

Market Share. The pricing decision is vital when the hotel's objective is to gain a hold in a new market or retaining a percent of the existing market. For new products the price is set artificially low in order to capture a sizeable portion of the market. For example when a hotel provides new spa services the price will be low in order to attract customers. The price will become higher as the product becomes more famous and more demanded by the target market. However, for existing products, hotels may use price decisions to insure they retain market share in instances where there are a lot of market competitors.

Maximize Profits. Older products that offered in a no longer growing market may have a company objective requiring the price be set at a level that optimizes profits. For example a hotel chain can set the prices of the old hotels at a level that optimizes profits. This is usually happens when the marketer has little incentive to introduce improvements to the product. For instance the demand for a hotel is declining then the marketer will continue to sell the rooms at a price premium for as long as some in the market is willing to occupy them.

External Factors:

Elasticity of Demand. The marketers must continually use market research and never rest on their decisions, to determine whether marketing decisions must be made. When the marketer adjusting price must recognize what result a change in price is possible to have on target market demand for a product. The elasticity of demand shows how the purchase quantity of a product changes as the price of this product change. We have three types of demand the elastic, the inelastic demand and the unitary demand.

- Elastic Demand: Hotels are considered to be in a market that exhibits elastic demand when a certain percentage change in price results in a larger and opposite percentage change in demand. For example, if the price of a room decreases by 10%, the demand for this room will rise by greater than 10%.

- Inelastic Demand: Hotels are considered to be in an inelastic market when a certain percentage change in price results in a smaller and opposite percentage change in demand. For example, if the price of a hotel room decreases by 10%, the demand for this hotel room will rise by less than 10%.

- Unitary Demand. This demand occurs when a percentage change in price results in an equal and opposite percentage change in demand. For example, if the price of a hotel room decreases by 10%, the demand for this hotel room will rise by 10%.

Guest expectations. The most important external factors that affect price setting are the expectations of the guest of the hotels. When a guest is making a purchase or rent decision he assess the overall value of the hotel more than he assess the price of it. When marketers decide the price of a product, they must first to conduct consumer research in order to determine what price point is acceptable. A higher price of this price points could discourage consumers from purchasing a product. For example if the guest accept to pay 70 € for a type of room, a higher price will discourage them to make reservation for this room. The several distribution channels must also be considered when determining price. Tour operators for example expect to receive financial compensation for their efforts, which usually means they will receive a percentage of the final price. This percentage between what they pay the marketer to acquire the product and the price the hotels charge their guests must be sufficient for the tour operator to cover his costs and also earn desired revenue.

Competitive and Other Products. The marketers of the hotel must research the competitors during the setting price for indications of how price should be set. Nowadays, this research is very easy because all the hotels put their prices in internet sites. Price analysis can be rather more complicated since final price may be affected by a number of factors including competitors.

Analysis of competition includes pricing by direct competitors, related and primary products.

- Direct Competitor Pricing: All the important marketing decisions will include an evaluation of competitors' offerings. Big hotel Chains that they are market leaders may not affected by competitors pricing policy. They are in the position to set the prices as they want. For example the new Hotel in Dubai that is the higher hotel in the world, can set the prices as they believe. In markets without a hotel leader the pricing policy of competitive hotels will be carefully considered.

- Related hotel Pricing: Hotels that offer new ways to satisfy guest needs may look to pricing of hotels that guests are currently using even though these hotels may not appear to be direct competitors. For example, a marketer in Corfu of a new wellness hotel may look at prices charged by the resort hotels for instruction to gauge where to set their price.

- Primary Product Pricing: Marketers may sell products viewed as complementary to the hotel. For example, a Chinese restaurant or a simple a la carte restaurant in the hotel viewed as complimentary products. The pricing of the restaurants may be affected by pricing changes made to the hotel since guests may compare the price for the restaurant based on the hotel price. For example, restaurants in five star hotels are expected to be expensive from the guests because the hotel is expensive.

Government Regulations. The hotel's marketers must be aware of regulations that impact how price is set in the market. These regulations that settled by the government may be legal ramifications if the rules are not followed. Price regulations can come from any level of government and differ generally in their requirements. For example, tourism government regulation may set higher and lower price point. In addition, regulations also include price discrimination, price fixing etc. The hotel's marketers must have a clear view of regulations in each market they serve.

2. Companies set prices by selecting a general pricing approach that includes the following:

- Cost based pricing: It is a pricing method in which a fixed sum or a percentage of the total cost is added as profit to the cost of the product to arrive at its selling price. It is easy to calculate and requires little information. For example, if the desired profit per room is 20 percent and room costs are 100€, the hotel must set room rate at 120€.

- Competition based pricing: It is a pricing method in which a company uses prices of competing products as a benchmark instead of considering own costs or the customer demand. For example, the Eva hotel in Corfu setting the room rate at 80€ based upon the Corfu Palace that has a room rate 80€.

- Prestige pricing: Prestige pricing, may be considered when location, exclusivity or unique customer service can justify higher prices. For example the new hotel in Dubai that is the higher building in the world may set room rates above their competitors. Moreover, cheap products are not taken seriously by some people unless they are priced in a higher level. For example if a five star hotel has 30€ room rate with a high quality service guests will prefer a five star hotel with room rate 120€ because they believe that they offer higher quality.

- Market- skimming pricing: It is a pricing method in which a producer sets a high price for a new high-end product or a unique different product. Its objective is to 'skim' maximum income from the market before similar products come out. After that is accomplished, the producer can lower the price drastically to capture the low-end buyers and the copycat competitors. For example the new wellness hotel founded in Peloponnese can set high room rates until another similar hotel founded in Greece.

- Market penetration pricing: This is a strategy followed by companies in order to achieve high volume of sales and promote a new product to the market. The product is widely promoted in a comparatively lower price. This strategy is based on the fact that the competitors will also lower their prices and the market is big enough to sustain comparatively low profit margins. For example a hotel in order to achieve high volume in sales of the new a la carte restaurant will set lower price to promote the restaurant to the market.

- Product Bundle pricing: The Product Bundle pricing is a marketing strategy that involves offering several products for sale as one combined product. This strategy is very common in hotels that they offering with the accommodation breakfast as free meal.

- Discounts based on time of purchase: This strategy is based on the time that the purchase is made and designed to reduce seasonal variation in sales. For example, hotels in Greece offers much lower rates in the low season and high room rates in the high season.

- Discriminatory pricing: Price discrimination occurs when a company charges a different price to different groups of customers for an identical good or service, for reasons not associated with costs. For example a hotel in Greece has different prices for residents and different price for tourists.