Miss Ilona Suvorova
PRICING FOR SERVICE INDUSTRIES
INTRODUCTION
The pricing of services and products is an extremely sensitive area for all businesses. If the price is set too high then the business will lose profits, and if the price is too low the business will also lose profits but for different reasons.
The added problem in tourism and travel based operations is that the ‘product’, whether it be a package holiday, a scheduled aircraft seat, an entry fee to the Louvre Museum in Paris, a night’s accommodation at a Ritz-Carlton hotel, are all perishable products.
In addition to that, time is the enemy for the travel and tourism sector. As time moves by, the chances of selling this perishable product at its full price start to diminish. It could be said that ‘time destroys the value of products and services in the tourism economy’
It is vital therefore that a business knows how to price a product to ensure that it covers all costs, that VAT is accounted for correctly, and that the business makes a satisfactory profit margin.
PRICING OBJECTIVES
The pricing of products and services requires knowledge of two sets of factors -
a) Financial factors
These are the costs necessarily incurred in providing the products and services together with the profit targets that the business are trying to achieve together with correct treatment of value added tax in working out a price.
b) Market factors
There is a need to be aware of customer perception and expectation of product prices in the market sector within which a business is operating. The need to become familiar with what competitors are charging for similar services and homogenous products is essential.
What do you think determines;
➢ the highest price ➢ the lowest price
that a business could charge?
IMPLICATIONS OF VALUE ADDED TAX [VAT]
A financial matter which affects the construction of a price is VAT.
VAT is a purchase tax levied by the government on goods and services
INTRODUCTION
The pricing of services and products is an extremely sensitive area for all businesses. If the price is set too high then the business will lose profits, and if the price is too low the business will also lose profits but for different reasons.
The added problem in tourism and travel based operations is that the ‘product’, whether it be a package holiday, a scheduled aircraft seat, an entry fee to the Louvre Museum in Paris, a night’s accommodation at a Ritz-Carlton hotel, are all perishable products.
In addition to that, time is the enemy for the travel and tourism sector. As time moves by, the chances of selling this perishable product at its full price start to diminish. It could be said that ‘time destroys the value of products and services in the tourism economy’
It is vital therefore that a business knows how to price a product to ensure that it covers all costs, that VAT is accounted for correctly, and that the business makes a satisfactory profit margin.
PRICING OBJECTIVES
The pricing of products and services requires knowledge of two sets of factors -
a) Financial factors
These are the costs necessarily incurred in providing the products and services together with the profit targets that the business are trying to achieve together with correct treatment of value added tax in working out a price.
b) Market factors
There is a need to be aware of customer perception and expectation of product prices in the market sector within which a business is operating. The need to become familiar with what competitors are charging for similar services and homogenous products is essential.
What do you think determines;
➢ the highest price ➢ the lowest price
that a business could charge?
IMPLICATIONS OF VALUE ADDED TAX [VAT]
A financial matter which affects the construction of a price is VAT.
VAT is a purchase tax levied by the government on goods and services