The hospitality industry holds the features of a service and therefore it is susceptible to five important variables present in services. These encompass intangibility, inseparability, heterogeneity, perishability and ownership. Such elements may act as a disadvantage, which are not present in other industries like manufacturing. For example, due to perishability the demand fluctuations cannot be managed in the same manner for products; service clients cannot simply stockpile against future needs. Indeed one main concern for hotels is the occupancy rate across the year. Personnel are also extremely important in the hospitality industry.
Due to the intangibility of a service it is important that staff is very proficient in their work and portray a smart and charismatic appearance. The lack of such elements may deteriorate the quality of the service. For instance in the hotel restaurant customers do not only value the food provided, but also the service in which the food is given. The hospitality industry is also very highly dependent upon the economic conditions on the country on a local and an international basis. It is true that all industries are affected by the economy, but in the case of hospitality it is to a much higher extent.
The location of the hotel is also very important. A segment of the customers, namely tourists prefer hotel in the vicinity of the centre and other important amenities. This would not apply to the manufacturing industry, which would seek more isolated places. Therefore the capital expenditure of hotels would be more significant because land near the centre is much more expensive. Question 6 As correctly pinpointed in the question, management should meticulously consider the external environment in pricing decisions. In highly competitive markets like tourism, the first thing that comes to mind in the external environment is the competitor.
It is true that one has to consider such element carefully, but frequently it is also required to be proactive to competitive moves. An effective way to forecast competitive moves is to look at other variables present in the external environment. The economic condition of the country is a particularly important one especially in tourism. If the economy is in a recession both in the home country and in other countries, one would expect adverse trading conditions that would diminish the number of tourists that would come to the country.
Under such periods it is advisable to charge a lower price in order to accommodate the lower disposable income that the target market would hold. Government influence is also highly important both for hospitality and tourism. If the country holds a stable Government that invests in developing the country, one could expect a rise in tourism. In such cases the hotel would be justified to charge a higher price in light of the value added by such country. Under the Government aspect it is also important to consider the legislation element in more detail.
There is the possibility of price fixing in tourism, which is the case in a number of countries. In such a stance the hotel price would have to comply with such legislations. Last but not least is the importance of quality at the expense of a higher price for the target market. In hospitality it is not a rare occasion that a certain segment of the market would prefer being charged a higher price, but offered very good quality. In such instances the hotel could adopt a market skimming strategy, like five star hotels where a high price is initially charged in order to skim the market.
This approach would probably be accompanied by a state of the art hotels.
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