ADEENA AMIR (60986)

CASE STUDY
SOLUTIONS
Q1. Elaborate how prices are set in the package holiday market.

Estimates of tour operating margins vary, but fairly low average figures - of the order of 5% (or around
£22 on the typical holiday price of around £450) are widely assumed in the mainstream segment of the
market. It should however be noted that vertically-integrated holiday operators (where the tour operator
also owns an airline and a travel agency) will normally also generate profit from consumers. Accordingly,
the gross margins on the total operations of the integrated operators may be larger than those on their
tour operation activities alone.

Tour operators need to operate at high levels of capacity utilization (figures of the order of 95% or more in
terms of holidays sold) in order to maintain profitability. Matching capacity and demand is therefore critical
to profitability, especially since package holidays are perishable goods - a given package loses all its
value unless it is sold before its departure date.

Q2:  How price discrimination is used as the pricing strategies.

The fixed costs of tour operation (mainly, the cost of the airline seat and most of the accommodation and
catering costs) make up a high proportion of total costs, so that relatively high levels of discount can be
applied if necessary to clear unsold stock. Reductions of up to 25% off the initial brochure price are
available on some ‘late’ sales – although consumers will often in such cases be required to accept the
operator’s choice of hotel, or even the resort, according to availability.

Discounting of holidays during this ‘lates’ part of the selling season is a similar phenomenon to that of
‘end of season stock clearance’ sales in other retail sectors (e.g. clothing). However the impact of
discounting on ‘lates’ in a normal season should be seen in the context of the operator’s turnover for the
season; it is effectively reduced by only about 5% (25% off 25% of holidays sold). Discounts (or
equivalent incentives such as ‘free child’ places or ‘free insurance’) for early purchase are also offered,
but they are much less significant both as to the amount of the reduction (5-10% appears typical) and its
impact on costs and turnover. About three-quarters of all package holidays typically are sold at or close to
the brochure price.

Q3: Elaborate how you could apply discrimination price strategies in Pizza Hut located in Karachi.

First, I will personalize the pizza hut pricing which is selling to each customer at a different price, and
maximizes the price that each customer is willing to pay. Then I do product visioning, which is offering a
product line by creating slightly different products for the purpose of price differentiation. In second-
degree price discrimination, price varies according to quantity demanded. Larger quantities are available
at a lower unit price. This is particularly widespread in sales to industrial customers, where bulk buyers
enjoy higher discounts. Then do group group pricing that is student and pensioner discounts, cinema
tickets at different prices for adults and children, peak and off-peak charges for gas, electricity and travel
etc.

Then two parts tariff nother form of price discrimination where the producer charges an initial fee then
a secondary fee for the use of the product. An example of this is razors where you pay an initial cost for
the razor and then pay for the replacement blades. This pricing strategy works because it shifts the
demand curve to the right: since you have already paid for the initial blade holder you will buy the
blades which are now cheaper than buying a disposable razor.

Then international discrimination, where pharmaceutical companies may charge customers living in
wealthier countries a higher price than for identical drugs in poorer nations, as is the case with the sale
of antiretroviral drugs in Africa. Since the purchasing power of African consumers is much lower, sales
would be extremely limited without price discrimination.

Then coupon and then premium prices that is in retail the assumption is that people who go to the
trouble of collecting coupons have greater price sensitivity than those who don't.  Making coupons
available enables, for instance, food manufacturers to charge higher prices to price-insensitive
customers, while still making some profit from customers who produce coupons and are therefore more
price sensitive. Rebates, bulk and quantity pricing, seasonal discounts, and frequent buyer discounts also
appeal to more price-sensitive customers.

or certain products, those labelled "premium" are priced at a level (compared to regular or economy)
that is well beyond their cost of production. Economists such as Tim Harford in the Undercover
Economist have argued that this is a form of price discrimination: by providing a choice between a
regular and premium product, consumers are being asked to reveal their degree of price sensitivity (or
willingness to pay) for comparable products.  This technique is used successfully in pricing business class
airline tickets, coffee and alcoholic drinks

Q4.  Elaborate how price package concepts could be applied in Pizza Hut Karachi.

Pricing will be applied in Pizza hut that sets the price at which it will sell its products and services, and
may be part of the business's marketing plan. In setting prices, the business will take into account the
price at which it could acquire the goods, the manufacturing cost, the marketplace, competition, market
condition, brand, and quality of product.

Pricing is a fundamental aspect of financial modeling and is one of the four Ps of the marketing mix, the
other three aspects being product, promotion, and place. Price is the only revenue generating element
amongst the four Ps, the rest being cost centers. However, the other Ps of marketing will contribute to
decreasing price elasticity and so enable price increases to drive greater revenue and profits.

Pricing can be a manual or automatic process of applying prices to purchase and sales orders, based on
factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote,
price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many
others. Automated pricing systems require more setup and maintenance but may prevent pricing errors.
The needs of the consumer can be converted into demand only if the consumer has the willingness and
capacity to buy the product. Thus, pricing is the most important concept in the field of marketing, it is
used as a tactical decision in response to changing competitive, market and organisational situations.