Hospitality Operations Management Contents Task 1 Part 1. Evaluate cost-based pricing and market-based pricing and explain why one approach is better than the other. Part II. Describe additional costs when considering pricing restaurant products. Part III.
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Cost-based pricing is the simplest pricing method which usually used by companies to maximize profit. In this process, a desired mark-up is added to the actual cost of the product to give the selling price. This method sets a price that covers the cost of production and to provide enough profit margin to the company to earn its target rate of return. (Boundless, cost based pricing, 2014) â€œIt is used by most organizations today because it is easy to calculate and that it needs less infoâ€ (Boundless, cost based pricing, 2014). However, when applying this method, it is impossible for a company to control if a potential customer purchases the product at the calculated price. (Atul Patel, 2009) In market-based pricing, the company will evaluate the costs of a similar product that are on the market. If the competitionâ€™s product has more or fewer features than Hotel Xâ€™s, Hotel X will then adjust the price lower or higher than a competitorâ€™s pricing. The hotel may also decide for their product cost to be of the same as a competitor, but it has to be of a better value. It may also be set to be slightly higher to account it for the additional feature. (Leigh Anthony, 2014) One of the flaws of market-based pricing is that Hotel X may need to engage in other tactics in order to gain more customers should the price is not enough to be an incentive. (Boundless, 2014) With this approach applied to Hotel X, it would be able to pull more guests by enforcing the market-based pricing method. This is because Hotel X is surrounded by many other restaurants within the area, so it keeps the hotel competitive with direct competitors. The competitorâ€™s price is at hand, so it is relatively fast to produce in terms of pricing.
Cover charge It is a fixed fee a customer has to pay regardless the service consumed. (Dictionary) For example, if a guest booked a table for ten persons and confirmed it,
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