Hospitality operation management

1. HOSPITALITY OPERATION MANAGEMENT
PROPOSE OF A PRICE FOR “COOL BOX” AND DISCUSSION OF THE ISSUE OF PRICING IT

2. INTRODUCTION
The main purpose of this presentation is to propose a price of “Cool Box” service that has been developed in
the previous presentation and to discuss the issue of pricing it. In an effort to make a reasonable price of
Cool Box service, the presentation will cover all aspects of the pricing issue.

3. OBJECTIVES
 To discuss the method of pricing of Cool Box
 To identify the factors affecting revenue generation
 To determine the factors affecting profitability

4. OVERVIEW OF THE COOL BOX SERVICE
 A new dimension of the service range of Starwood Hotel
 This service will make the tourists feel relaxed and comfortable during their travel day.
 This service will allow the customer to get all of their shopping lists within one box namely “Cool Box”
 The tourists from the UK, Ireland, and far reaching courtiers will have priority to get the service
 Only the price of goods will be priced in terms of the Cool Box service
 Customers can place their order through online to get the service (Them Park Service, 2016).

5. METHODS OF PRICING OF COOL BOX
Pricing is an important issue for a business. In order to make reasonable and fair price of Cool Box,
different methods of pricing are specified in the following way:
Cost Oriented
Market
oriented
Demand
Based Pricing
Competition
oriented
pricing
Product Line
pricing
Affordability
pricing
Differentiated
pricing

6. 1. PRICING METHOD
Cost oriented pricing: The cost base pricing methods are specified in the
following way:
 Mark up pricing: The selling price is fixed by adding mark up. For example, the cost
of production of cool box is $20 and the mark up is $5. Then the cost of Cool Box will
be $25 in terms of mark up pricing.
 Absorption cost pricing: Used by manufacturing firm and known as full cost
pricing (Brown and Jaques, 1964).
 Marginal cost pricing: The cost and demand of Cool Box services will have taken
into consideration to fix the price in terms of the marginal cost pricing (Kotler, 2000).
 Break even concept:

7. 1. PRICING METHOD (CONT’D.)
 Demand based pricing: It focuses on the supply and demand condition of a product or service. If the
demand of the Cool Box is high in relation to the supply, the price of the Cool Box service can be high.
 Skimming pricing: Initially, the Cool Box service will be sold at higher price but subsequently, the price will
be fixed at lower rate.
 Penetration pricing: Initially, the Cool Box service will be sold at lower price. Then the price will be fixed at
lower rate gradually (Nitisha, 2016).
 Competition oriented pricing: Based on the nature of the competition, Starwood Hotels could sell the cool
box service at premium, discounted or parity pricing.
 Product line pricing: The products in a given product line are related to each other (Nitisha, 2016).
 Affordability based pricing: To make the Cool Box service available to the target customer, affordability
based pricing can be used.
 Differentiated pricing: This service will be sold at different price at different market. For example, the
price that will be sold at U.S may differ for UK.

8. 1. PRICING METHOD (CONT’D.)
Market oriented pricing:
 Perceived value pricing: Based on customer’s perceived value, the price is fixed in terms of perceived value pricing. For example,
Customers perceive that the price of Cool Box service is $20. Then the price of Cool Box will be fixed as $20.
 Differentiated pricing: This price has been divided into following types
 Customer segment pricing
 Time pricing
 Area pricing
 Product form pricing (Nitisha, 2016).
 Going rate pricing: that means the price of the Cool Box will be determined by the major competitors of the hospitality industry
 Competitors parity method
 Premium pricing
 Discounted pricing
 Sealed bid pricing: In the case of large order, this pricing method will be counted for Cool Box service

9. 2. FACTORS AFFECTING REVENUE GENERATION
The factors that are affecting the revenue generation are specified in the following way:
Sales Mix
Customer
Turnover
Average Spending
Power
Production Level
Cost of raw
material
Adverse economic
condition
Marketing
Capacity
Customer service
capacity

10. 2. FACTORS AFFECTING REVENUE GENERATION (CONT’D.)
 Sales Mix: A way of mixing a set of product or
service of an organization in order to maximize the
level of sales. For example, the Starwood Hotel offers
from accommodation to food an beverage services to
the guests.
 Customer Turnover: By attracting the customer
through promotional campaign or other ways,
Starwood Hotels increases their customer turnover
which affects the revenue generation of this
hospitality company.
 Average Spending power: The more will be the
average spending power of the customer, the high
will be the level of sales. In contrast, lower average
spending power decreases the level of sales.
 Adverse economic condition: that means the
reduction of the commodity prices and the lower
demand of the products and services that affect the
revenue generation negatively.
 Production level: The organizational capability in
relation to the production of product and services
affect the revenue generation.
 Marketing capacity: Intelligent marketing
campaign increases the revenue of an organization.
 Customer service capacity: How effectively an
organization can satisfy the customer affects the
revenue generation of that organization (Economic
Help, 2016).

11. 3. FACTORS AFFECTING PROFITABILITY
The factors that affect the profitability of a business are specified in the following way:
Labor
intensity
Shelf-life
Elasticity of
demand
Portion
control
Economies
of scale
The state of
economy
The degree
of
competition

12. 3. FACTORS AFFECTING THE PROFITABILITY (CONT’D.)
Labor intensity: To conduct the daily operation of
a hospitality business, Starwood depends on a lager
number of labor. The more will be the human effort
against a particular products or service, the higher
compensation will be paid by Starwood. As a result,
the profitability will be low.
Shelf-Life: that means the duration of time required
for the sortation or preservation of a product without
deterioration. The deterioration of product reduces
the profitability.
Elasticity of demand: The imbalance between
demand and supply may go down the profitability.
Economies of scale: To avoid the high average
cost, a firm with high fixed cost is required to obtain
economies of scale. Otherwise, the profitability may
reduce.
The state of economy: adverse economic
condition or recession reduces the demand of
products and services that lower the profitability
The degree of Competition: As Starwood
conducts their business activities in the high
intensive competitive market, their profitability may
be affected by the degree of the competition
(Economic Help, 2016).

13. CONCLUSION
Ultimately, the price of Cool Box may be fixed by following different pricing methods that have been shown
here. As, different factors affect the revenue generation and profitability of a business organization, they
should formulate effective strategy to prevent the negative effects of that factors.

14. REFERENCES
Economic Help (2016). Factors affecting the profitability of a firm. [Online] Available at>
http://www.economicshelp.org/microessays/profit/ [Accessed: September 4, 2016]
Nitisha, S. (2016). 4 Types of pricing method explained. [Online] Available at> http://www.economicsdiscussion.net/price/4-
types-of-pricing-methods-explained/3841 [Accessed: September 8, 2016]
Them Park Service (2016). Them Park Service. [Online] Available at> http://www.themeparkservices.com/coolbox/ [
September 7, 2016]
Decrop (2000). Tourism and Tourist attitude. Journal of Tourism Research. Vol. 33 (3) pp. 301-321
Hall, M.C., and Lew, A. A. (2009). Understanding and managing tourism impacts: An integrated approach. New York, NY:
Routledge
Starwood Hotels. (2016). About Starwood Hotels. [Online] Available at> http://www.starwoodhotels.com/ [Accessed: September
4, 2016]
Brown, W. and Jaques, E. (1964). Product analysis pricing. London: Heinemann.
Kotler, P. (2000). Marketing management. Upper Saddle River, N.J.: Prentice Hall.