{"id":22493,"date":"2020-04-08T08:20:24","date_gmt":"2020-04-08T08:20:24","guid":{"rendered":"https:\/\/www.xotels.com\/uncategorized\/competition-based-pricing\/"},"modified":"2024-12-23T09:22:08","modified_gmt":"2024-12-23T09:22:08","slug":"competition-based-pricing","status":"publish","type":"post","link":"https:\/\/www.xotels.com\/en\/glossary\/competition-based-pricing","title":{"rendered":"Competition Based Pricing"},"content":{"rendered":"

What is the meaning \/ definition of Competition Based Pricing in the hospitality industry<\/a>?<\/p>\n

The term competition based pricing, also known as competitive pricing<\/a> refers to the process of a company pricing its product\/ service (in hotels rooms, food & beverages) according to the competitors. Competition Based pricing should be part of your Revenue Management Strategy<\/p>\n

In industries which have preceded in the industry life cycle competition based pricing often forces smaller uncompetitive companies into bankruptcy. In general, competitive pricing often occurs when many companies are offering similar products or services to their market. When this happens and companies aren\u2019t able to differentiate themselves from their competitors the last factor they can adjust to win customers is price. Therefore, this type of pricing is rather a last resort<\/a> \u2013 especially for hotels \u2013 as they should aim to differentiate themselves by their offerings, whereby they can charge a premium for their service.<\/p>\n

Therefore, this rather happens with commodities or products that have less \u201cstatus\u201d differentiation. In the luxury hotel<\/a> market for example, competition based pricing may actually hurt the hotel<\/a> in the long-term as their clientele actually chooses for them due to their price being related to their exceptional offerings.<\/p>\n

On the other hand, Budget hotels & hostels deal with price sensitive clientele whereby the price stands in the foreground. These establishments are able to increase demand<\/a> easily by lowering their price as customers are \u201chunting\u201d for bargains. Therefore, within highly competitive cities budget hotels are constantly orienting themselves on their competitors. This drives down prices, in favour of the consumer.<\/p>\n

Competition based pricing comes with advantages and disadvantages for companies, following this pricing strategy<\/a>.<\/p>\n

Advantages:<\/strong><\/p>\n

\u2013 It avoids price competing on prices lower than competitors.<\/p>\n

\u2013 It is able to drive business in times where \u201csome\u201d business is better than \u201cnone\u201d<\/p>\n

Disadvantages:<\/strong><\/p>\n

\u2013 May harm brand image<\/p>\n

\u2013 May lead to losses, due to not focussing on covering the overhead costs and increasing margins.<\/p>\n

\u2013 Price reduction will automatically increase demand if product is not up to par.<\/p>\n

\u2013 May get you distracted from other business tasks<\/p>\n

\u2013 It doesn\u2019t work in all markets<\/p>\n

\u2013 It\u2019s difficult for small businesses, as larger companies are more capable of reducing cost per customer.<\/p>\n

See also:<\/strong><\/p>\n