Bottom- Up Pricing

BOTTOM-UP PRICING

ROOMS DIVISION MANAGEMENT
DEFINITION
Method where, in contrast to top-down pricing the pricing process starts with the desired profit to which all direct andindirect expenses are added to compute a selling price (WebFinance, Inc., 2012).
CALCULATION
Break even point + profit expected
# of rooms expected to be occupied

Example
ALAMEDA HOTEL
Rooms: 150Occupancy: 66%  100
Break- Even Point for Revenues: $ 900 000
Profit Expected: (40%) $ 360 000
Expected Rooms Occupied: 100 x 365 = 36 500 rooms in a year.
Break even point + profit expected= actual price for a room
# of rooms expected to be occupied

900 000+ 360 000 = $34,52
36 500
IT IS IMPORTANT TO
Have accurate information about costs.
Distribute costs correctly make decisions quickly with reliable, comprehensible and relevant information.
Divided costs adequately into fixed and variable (Torres Rivera & Cuevas Zu, 2012).
COSTS
FIXED COSTS: expenses thatremain constant despite the increase or decrease of sales volume.
VARIABLE COSTS: expenses that increase as sales volume increases and decreases when sales volume decreases (Torres Rivera & Cuevas Zu,2012).
ADVANTAGES
This pricing method covers all costs and includes profit expected.
It relies in real information.
It provides real prices or rates.
DISADVANTAGES
Factors that are not takenin account:
Different types of rooms: single, double, suites, among others.
The method just considers an average rate for all the rooms.
This approach does not include an analysis of the demandand the competency, neither the possibility to apply differential pricing.
(Torres Rivera & Cuevas Zu, 2012)
TO TAKE IN CONSIDERATION
There must be a balance between rooms’ price and what costumersperceive from the product & service.
If prices are too high, customers will believe they are not getting adequate value for their money and they will look for other providers.
If prices are too low...