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Pricing Strategy - Case Study Example

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Name: University: Course: Tutor: Date: Every organization is faced by dilemma on how much to charge for the product it is offering to its customers. According to economic theory, demand is a function of price, therefore; customers will consider the price of the product before purchasing the product…
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Pricing Strategy
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Download file to see previous pages Pricing must show a positive correlation with other elements of the mix so as to achieve the objectives of a firm. In addition, pricing is complex as it must imitate the demand and supply relationship of the product. Firms need to charge a fair price, since charging too high for the product or too low might lead to reduction in sales for the organization thus reducing the profitability of the organization. Therefore, there is a need for the hotel to consider the profit factors in determining the price of the product. In this case, the profit factors includes; the objectives of the company, variable and fixed cost associated with the product, the targeted market and willingness and ability to pay, the competition environment prevailing in the industry and planned positioning strategies (Smith and Smith 271). In the consideration, of the above classification, the place or rather the location of the hotel is vital for pricing. Avira hotel is strategically situated, where in the neighborhood there various tourist attraction site thus offering the possibility a wider a market. Also, the hotel operates from an area which is close to the airport, bank and various garden as well as other recreational areas. This implies that the many of the customers are individuals who have a higher willingness ability to pay; therefore, the price must reflect this consideration (Smith and Smith 282). The strategic positioning in an area where there demand of the hotels implies the price charged by the hotel must reflect the supply constrain, since there are only five-star hotels in the area, while the number of the customer is higher. This implies that demand is considerably high since it is only in the month may that the hotels products experienced an average of about 50% occupancy this justifies the move by the hotel review it price so as to reflect this relationship (Smith and Smith 289). Another pricing strategy showcased in this case is the level of competition in the hotel industry in the region. There are only five-star hotels serving a wide, thus, the completion between the hotels is not intense as demand is in excess of supply. This implies that, for a hotel to be more competitive than the other hotel so that it can control the large proportion market, therefore, they must consider the pricing strategy so as to maximize on large production thus benefiting from the economies of scale. In respect to competition, the customers consider the utility they derive and compare this to the price that they pay for the product. It is evident that the price that Avari hotel is slightly higher than that of its key competitor Pearl. Usually consumers will pay higher for a commodity if they think that the commodity is superior as compared to the others. In this case, when Avira lowered its price in the month of November lower than its competitors Pearl; that is pearl charges $1065 and Avira $1000. Pearl occupancy level rises to 80% as compared to 70% Avira. This has the implication that consumers equate the price they pay to the utility or satisfaction they derive from consuming these products. Avira also utilizes premium pricing, where it charges higher prices for its products to show the how its product is exclusive as compared to the product offered by other firms and especially competition. This case can be delineated by the ever higher price charged by Avira as compared to Pearl. In addition to this, the ...Download file to see next pagesRead More
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