HT-MGT 370 Lecture Notes - Yield Management, Gross Margin, High High
4 Sep 2013
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Document Summary
Four main factors are essential for price determination: demand. Demand sets the upper limit or ceiling of price. It determines what customers are willing to pay. Elasticity of demand to changes in price is an important issue in setting prices. The price elasticity of demand is measured as the change in quantity demanded per unit change in price. Price elasticity of demand = (% change in quantity demanded)/ (% change in price) . For instance, a budget hotel increases its room price from 20$ to 22$ per room night (10%). Consequent to this price increase, the demand declined from 100 to. The price elasticity of demand for this motel would be (5%/10%) or 0. 5. The airline and lodging industry recognize seasonal fluctuations in demand and price their products accordingly. Such demand-based approach to pricing is called yield management: costs. Another important factor to consider in pricing is cost. Costs set the lower limit or floor of price: objectives.
