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32 Cards in this Set
- Front
- Back
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PROVIDES A MEANS FOR MEASURING HOW SENSITIVE DEMAND IS TO CHANGES IN PRICE. |
PRICE ELASTICITY OF DEMAND |
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DEMAND IS SENSITIVE TO PRICE CHANGES-PRICE INCREASE LEADS TO A DISPROPORTIONAL REDUCTION IN UNIT SALES; ANY ADDITIONAL REV GENERATED BY THE HIGHER PRICE WILL BE MORE THAN OFFSET BY THE DROP IN DEMAND. (COMPETITION IS HIGH DUE TO THE PRESENCE OF MANY OPERATIONS AND WHERE PRODUCTS/SERVICES ARE FAIRLY STANDARDIZED) |
ELASTIC DEMAND |
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DEMAND IS NOR VERY SENSITIVE TO PRICE CHANGES, A PRICE INCREASE WILL LEAD TO A RELATIVELY SMALL DROP IN QUANTITY DEMANDED; THE PRICE INCREASE WILL GENERATE MORE REVENUE THAN THE DROP IN DEMAND LOSES. (COMPETITION IS LOW OR NONEXISTENT OR WHERE AN OPERATION HAS GREATLY DIFFERENTIATED ITS PRODUCTS/SERVICES) |
INELASTIC DEMAND |
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THIS APPROACH IS FLAWED BECAUSE IT IGNORES THE DIFFERENCES AMONG OPERATIONS, SUCH AS LOCATION, PRODUCT QUALITY, ATMOSPHERE, CUSTOMER GOODWILL AND SO FORTH. IT ALSO IGNORES THE COST OF PRODUCING THE PRODUCTS AND SERVICES SOLD. |
COMPETITIVE PRICING |
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PRICING BASED ON WHAT THE MANAGER FEELS THE GUEST IS WILLING TO PAY. MANAGERS USING THIS APPROACH RELY ON THEIR EXPERIENCE REGARDING GUESTS' REACTIONS TO PRICES. |
INTUITIVE PRICING |
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PRICES ARE SET ON THE BASIS OF WHAT THE GUEST EXPECTS TO PAY. THIS APPROACH MAY BE USED RELATIVELY EXCLUSIVE LOCATIONS AND BY THE OPERATORS WHO THINK THAT THEIR GUESTS BELIEVE THE MORE PAID, THE BETTER THE PRODUCT. |
PSYCHOLOGICAL PRICING |
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PRICING APPROACH FIRST SETS A PRODUCT PRICE, MONITORS GUESTS' REACTIONS, AND THEN ADJUSTS THE PRICE BASED ON THESE REACTIONS. |
TRIAL AND ERROR |
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COST APPROACHES-MODIFYING FACTORS |
PRICES CHARGED IN THE PAST GUESTS' PERCEPTIONS OF VALUE PRICES CHARGED BY THE COMPETITION PRICE ROUNDING |
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DESIGNED TO COVER ALL NON PRODUCT COSTS (SUCH AS LABOR, UTILITIES, SUPPLIES, INTEREST EXPENSE, TAXES) AND PROFIT. |
MARKUP |
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MARKUP APPROACH THAT CONSIDERS ALL PRODUCT COSTS. |
INGREDIENT MARKUP |
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MARKUP APPROACH THAT CONSIDERS ONLY THE COST OF THE MAJOR INGREDIENT. |
PRIME INGREDIENT MARKUP |
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THE AVERAGE PRICE PER ROOM IS DETERMINED BY TURNING THE INCOME STATEMENT UPSIDE DOWN. |
BOTTOM-UP APPROACH |
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DESIRED PROFITS +INCOME TAXES +MANAGEMENT FEES +FIXED COSTS +UNDISTRIBUTED OPERATING EXPENSES +/- NON-ROOM DEPARTMENTAL LOSSES (PROFITS) +DIRECT EXPENSES OF THE ROOMS DEPARTMENT/ REQUIRED ROOMS DEPARTMENT REV |
HUBBART FORMULA |
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THE MAXIMUM RATE A HOTEL CHARGES FOR A ROOM |
RACK RATE |
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THE DISCOUNTING MAY BE SIGNIFICANT DUE TO THE MINIMAL VARIABLE COSTS PER ROOM. A HOTEL IS BETTER OFF SELLING A ROOM FOR A REDUCED RATE THAN NOT AT ALL. |
*REMEMBER |
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INVOLVES UNDERSTANDING, ANTICIPATING, AND REACTING TO BUYING TRENDS. IT REQUIRES MANAGERS TO ANALYZE SUPPLY OF AND DEMAND FOR ROOMS TO MAKE PRICING DECISIONS. |
REVENUE MANAGEMENT |
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INVOLVES UNDERSTANDING OF THE TYPE OF CUSTOMER GENERATING DEMAND. |
MARKET SEGMENTATION |
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THE BEST FOOD COST PERCENTAGE DOES NOT NECESSARILY YIELD THE LARGEST GROSS PROFIT. IT IS MORE EFFECTIVE TO FOCUS ON THE GROSS PROFIT PROVIDED BY A SALES MIX. |
*REMEMBER |
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IS A METHOD OF MENU ANALYSIS AND PRICING. |
MENU ENGINEERING |
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IS CHARACTERIZED AS HIGH OR LOW IN RELATION TO THE AVERAGE GROSS MARGIN FOR ALL MENU ITEMS. |
GROSS MARGIN |
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HIGH IN BOTH MARGIN AND POPULARITY |
STARS |
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HIGH IN MARGIN BUT LOW IN POPULARITY |
PUZZLES |
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HIGH IN POPULARITY BUT LOW IN MARGIN |
PLOW HORSES |
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LOW IN BOTH MARGIN AND POPULARITY |
DOGS |
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COORDINATES PRICING FOR ALL DEPARTMENTS TO OPTIMIZE THE WHOLE OPERATION'S NET INCOME. |
INTEGRATED PRICING |
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THE 50-ROOM ROOMS-ONLY HAKONE INN HAS AN ADR OF $60 AND VARIABLE COSTS PER ROOM SOLD OF $20. ASSUME THERE IS NO OTHER SALES ACTIVITY. ITS MONTHLY FIXED COSTS TOTAL $45,000. IF THE OWNER, KINTARO, DESIRES HIS PROPERTY TO GENERATE AN ANNUAL PRETAX PROFIT OF $100,000, HOW MANY ROOMS MUST BE SOLD? |
$60 PER ROOM SALES -$20 PER ROOM VARIABLE COSTS ___________________________________ $40 PER ROOM FOR FIXED COSTS + PROFIT $45,000/MONTH FIXED X 12 MONTHS SO, ANNUAL FIXED $540,000 + $100,000 _________________________________________ $40 PER ROOM =16,000 ROOMS MUST BE SOLD TO BREAKEVEN |
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BASED ON THE INFO IN THE PREVIOUS QUESTION, PLEASE CALCULATE THE REQUIRED APPROXIMATE OCCUPANCY LEVEL OF THE HAKONE INN. IF THE AVERAGE OCCUPANCY IN THE AREA OF THE HAKONE INN IS 60%, IS IT LIKELY THAT THE OWNER, KINTARO, WILL MEET HIS PROFIT OBJECTIVE? |
ANNUAL ROOM NIGHTS AVAILABLE IS 50X365=18,250 ANNUAL ROOM NIGHTS OF DEMAND=16,000 OCCUPANCY 16,000/18,250=87.7% |
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IF AN OPERATION HAS A HIGH LEVEL OF FIXED COSTS RELATIVE TO VARIABLE COSTS, IT IS SAID TO BE HIGHLY LEVERED MEANS A RELATIVELY SMALL INCREASE IN SALES BEYOND THE BREAKEVEN POINT RESULTS IN A RELATIVELY LARGE INCREASE IN NET INCOME. |
TRUE |
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____ IS A SITUATION IN WHICH THE PERCENTAGE CHANGE IN QUANTITY DEMANDED EXCEEDS THE PERCENTAGE CHANGE IN PRICE. |
ELASTIC DEMAND |
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____IS AN APPROACH TO PRICING GOODS AND SERVICES THAT DETERMINES RETAIL PRICES BY ADDING A CERTAIN PERCENTAGE TO THE COST OF GOODS SOLD. |
MARK UP |
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GENERALLY SPEAKING, DURING A HIGH DEMAND PERIOD, ONE WOULD WANT TO EMPLOY A SALES STRATEGY THAT RESTRICTS AVAILABILITY OF DISCOUNTED RATES AND LIMITS BUSINESS THAT IS UNLIKELY TO PRODUCE HIGH PROFITS. |
TRUE |
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THE $1 PER $1,000 APPROACH A. FAILS TO CONSIDER THE CURRENT VALUE OF FACILITIES. B. IS NOT A WELL KNOWN APPROACH TO PRICING ROOMS. FAILS TO CONSIDER ALL THE SERVICES THAT GUESTS PAY FOR IN A HOTEL COMPLEX. |
ONLY A AND C |
