Student’s name:

1. Phạm Phương Thảo 718H0200

2. Trần Nguyễn Minh Thư 718H1769
3. Trần Thị Thanh Tâm 718H1752

CHAPTER 4. DIFFERENTIAL PRICING

I. Apply what you know

Question 1.
A. List five identifying characteristics of room buyers you believe Sharon should
target as her potential room buyers.
- Customers who need full-service during their stay at the hotel
- Customers who put convenience first
- Customers who can afford to pay a larger amount to get the conveniences
- Customers who want to stay near the interstate highway exit
- Customers who need a short stay at a mid-sized hotel.

B. Describe a distinct distribution channel you feel Sharon could use to communicate
and sell to each of her targeted groups.
Channel I feel Sharon could use to communicate and sell to each of her targeted
groups through computer or phone booking applications. Here Sharon can show
customers how her hotel is different from the nearby limit-service hotels. Also, since her
hotel is close to the highway and there will be a lot of non-booking visitors, Sharon
needed an eye-catching sign to attract customers. The sign can show some highlights of
the hotel that the nearby limit-service hotels do not have, such as breakfast, parking
places, etc.

C. Do you believe Sharon should sell to these groups at room rates higher or lower
than the rates offered by her newer limited-service competitors? Explain your
answer.
In the case of Sharon, I assume that she owns and manages a hotel with full
amenities and Sharon is looking to identify travelers who are still looking for the
amenities offered by the facilities full service medium size like her hotel. So that I believe
when she increases the price of her room to a level that is the same with the full-service
that her hotel offers. Because of the price increase and offering different services superior
to limited-service hotels, customers who really have needs and requirements for
convenient and quality accommodation will definitely choose her hotel. She doesn’t have
to cut the price to sell to everyone, what she needs is to show the customer the difference
in quality she gets. With more facilities, a higher price is certain, customers with high
requirements for service level are the customers that Sharon targets.

Question 2.
A. Calculate the room revenue your hotel would receive if Tom booked:
I. 250 rooms in a month
II. 350 rooms in a month
III. 401 rooms in a month

Rooms Purchased ADR Total revenue

250 rooms $139.99 $34997.5

350 rooms $139.99 $48996.5

401 rooms $119.99 $48115.99

TOTAL $132109.99

B. Assume the variable cost associated selling each room is $65.00. Calculate the
“after variable costs” revenue your hotel would receive if Tom booked:
I. 250 rooms in a month
II. 350 rooms in a month
III. 401 rooms in a month

Rooms Purchased ADR Contribution margin Total revenue

250 rooms $139.99 $139.99 - $65 = $74.99 $18747.5

350 rooms $139.99 $139.99 - $65 = $74.99 $26246.5

401 rooms $119.99 $119.99 - $65 = $54.99 $22050.99

TOTAL $67044.99

C. As the DOSM/RM for the Hawthorne Suites, would you be in favor of this
quantity discount program? Explain your answer.
Yes I would be in favor because optimize product availability, and yield the
greatest business profits. It also built a loyal customer base in the future.
 Question 3.
A. Calculate Sandy’s “distribution cost”, “net round yield”, “net revenue” for each
channel.

Standard Net Round

Source Dist. Costs Net Round Yield Rounds Sold Net Revenue
Fee Fee
$75.00 - $69.00 ($69.00/$75.00)*100 $69.00/40
Comfort Suites $75.00 $69.00 40
=$6.00 = 92% =$1.73
Hampton Inn $75.00 $67.00 $8.00 89% 30 $2.23

Hilton Garden $75.00 $65.00 $10.00 87% 30 $2.17

Springhill $75.00 $61.00 $14.00 81% 20 $3.05

Sheraton $75.00 $60.00 $15.00 80% 40 $1.50
Hyatt Place $75.00 $59.00 $16.00 79% 20 $2.95
Total $75.00 180

B. Calculate the overall average “net round fee” for the 180 rounds of golf Sandy
received during the week from these six channels.
The overall average “net round fee” for the 180 rounds of golf Sandy received
during the week from these six channels = ($69.00 + $67.00 + $65.00 + $61.00 + $60.00
+ $59.00)/6 = $63.50

C. Which channel(s) do you believe are Sandy’s best partners? Explain your answer.
The same current golf rate for playing a round (18 holes) of golf on the course of
Fox Meadows Golf Club is $75.00 per player, after which Sandy Miley receives $69.00
from intermediaries ($6.00 less than the standard price charged for a customer) for
Comfort Suites. In contrast, at the same price of $75.00 per customer, Sandy Miley
received $59.00 from the intermediary ($16.00 less than the standard price charged for a
customer) for Hyatt Place. This proves that Comfort Suites brings in more net revenue
per sale, and Sandy Miley should choose to partner with this hotel for the highest profit
for Fox Meadows Golf Club.

Question 4.
 What is the lowest price at which Lara could sell a burger, fries, and a drink
combination and still equal the “per customer” served contribution margin she currently
achieves? Do you think she could sell the bundle for more? Explain your answer.
Item #Sold Selling Item Cost Item Cont. Total Cont.
Price Margin Margin

Burger 822 $2.99 $1.45 $1.54 $1265.88

Fries 640 $1.49 $0.44 $1.05 $672

Drink 972 $1.19 $0.22 $0.97 $942.84

Total $2880.72

⇒ The lowest price at which Lara could sell a burger, fries, and a drink combination
and still equal the “per customer” = $2880.72 / 2434 = $1.183

I believe that she can sell the bundle for more than what I calculated though. This
will increase the item contribution margin as a whole. A compelling product bundle is a
combination of complementary products or services, packaged up into one nifty deal, and
sold at a discounted price. It also increases the value of a sale, enables cost-efficiency and
boosts profits.

Question 5.
A. What will be the hotel’s occupancy % under each of the plans?
Hotel’s occupancy% = (Number of rooms sold/Total hotel rooms)*100%
- Keith’s plan = [(220 + 180)/400)]*100 = 100%
- Carla’s plan = [(220 + 120)/400]*100 = 85%

B. What will be the hotel’s ADR under each of the plans?

ADR = Total room revenue/Total rooms sold
- ADR for Keith’s plan = (220*$179.00 + 180*$109.00)/(220+180) = $147.5
- ADR for Carla’s plan = (220*$179.00 + 120*$159.00)/(220+120) = $171.94

C. What will be the hotel’s RevPAR under each of the plans?

RevPAR = Total revenue/Total rooms available for sale
- RevPAR for Keith’s plan = (220*$179.00 + 180*$109.00)/400 = $147.5
- RevPAR for Carla’s plan = (220*$179.00 + 120*$159.00)/400 = $146.15

D. What will be the hotel’s GOPPAR under each of the plans?

GOPPAR = (Total revenue - Management controllable expense)/Total rooms available
for sale
- Keith’s plan
GOPPAR = (220*$179.00 + 180*$109.00) - [$35.00*(220+180)]/400 = $112.5
- Carla’s plan
GOPPAR = (220*$179.00 + 120*$159.00) - [$35.00*(220+120)]/400 = $116.4

E. If you were Leona, whose plan would you support?

If I were Leona, I would support Carla’s plan because after deducting management
controllable expenses, GOPPAR of Carla’s plan is higher than Keith’s despite Keith’s
plan having a higher number of rooms sold than Carla’s.

F. The Tripletree is a full-service hotel. Would your position change if the hotel were
a limited-service property? Explain your answers.
Tripletree Hotel is a 400-room full-service hotel. However, if the hotel is a
limited-service property for reasons such as hotel staff having an improper attitude or
disturbing customers, damaged facilities or unskilled customer service, the hotel will
reduce the reliability of the customer. Since then, through social networks, potential
customers will not choose Tripletree Hotel when traveling, leading to a decrease in
revenue. Not only does it affect the hotel’s financial situation, but it also affects the
productive employees who will choose a better place to work.

II. Case study

Question 1. Assume Damario is successful in “selling” the idea of a discounted thru-the-
week package for seniors to the rest of the revenue committee. What specific fences
would you recommend he construct to optimize the hotels’ revenues from this program?
In this case I assume Damario succeeds in “selling” the idea of a weekly seniors
discount to the rest of the revenue committee. To optimize revenue in this case, I have
some suggestions:
- Seniors are usually free and get together on weekdays so I would suggest a
discount when they go as a group of 5-8 people. From there, the revenue will be
increased even though it is in the discount program.
- Implement a room discount program but we will sell courses like fitness for the
elderly or gardening courses to increase revenue. Selling unique experiences is
also a great way to maximize revenue.
 - In the last suggestion, I strongly agree with Damario’s thinking which is to sell the
product at the best price at a given time. For example, sell weekday packages to
seniors because even if you don’t sell them your hotel could be useless.

Question 2. Assume the hotel also hosts senior travelers currently paying full price for
their visits. Some visit on the weekend, but others visit during the week. What specific
actions could the hotel undertake to ensure these full-paying guests felt they also received
excellent value for each travel dollar they spent at the Barcena?
To make sure full-paying guests feel they’re also getting great value for their
money, I have a few recommendations:
- Ensure to provide full facilities that the hotel has introduced to customers
- Staff have good service attitude during the guest’s stay
- Regularly ask and take care of customers even after their vacation
- Orientation helps customers understand the hotel’s promotions. This helps guests
understand who is the age group and who is being promoted so that they do not
feel uncomfortable when they are not promoted and feel fair.

Question 3. Assume you were Damario. What are specific price differentiation tactics
you could implement in regard to this specific discount program? Explain why each tactic
you selected was chosen.
If I were Damario, I would also use customer characteristics differential pricing
strategies that offer the same product or service, at different prices to senior citizens.
Because like he said, senior citizens have more time and more income to enjoy their trip
in a long time at our resort. They have no kids to worry about taking out of school. No
limit on when they can get off work, because they already are off work. Permanently.
And weekend travel is nice, but weekday travel is just as nice for most of them.They have
the freedom to choose.

Question 4. Prices strongly communicate to customers the value a company places on its
own products and service? In some cases, prices that are too low can cause some
customer perceptions of quality to decline. How can Damario ensure the customers he
targets do not respond to his value proposition with the thought that his new package is
“too cheap” to truly represent a good value?
Before making a purchase or using a service, customers make choices based
primarily on price, so businesses need to understand and provide more than the value of
the product/service that customers actually spend money to experience.
 For target customers, the hotel needs to list in detail what services they receive in
addition to the room rate during the stay on OTAs and the hotel’s website. Thereby,
customers will know that they receive good value and service but only pay at a low price
and they will not hesitate to book immediately.
Different buyers place different values on the same products or services, and as a
result are willing to pay different prices for them because in the hospitality industry,
hotels can sell different prices because of different kinds of versions, such as normal
room, queen room, family room, etc.