Question

You said it would be interesting, but I didn’t realize just how interesting it was going to be,” said Damario.

“Well,” replied Sofia, “This resort is not unique. In a lot of properties I’ve worked, there is an ongoing conflict between managers in charge of covering costs and those directly responsible for getting and satisfying guests.”

“Like Mark and Pam,” interrupted Damario.

“Yes, like Mark and Pam. That’s why things got a little animated. I’m convinced they both have the resort’s best interests at heart; they just come at our challenges from their own perspectives.”

Damario, the Barcena Resort’s recently appointed RM, and Sofia, the property GM, were recapping the first meeting of the newly formed Strategic Pricing and Revenue Management committee. Sofia had chaired the first session and had informed the group that Damario would lead their efforts in their future.

In the initial meeting that had just concluded, conversations between Mark, the property controller, and Pam, the DOSM had gotten quite spirited at times. Mark’s position was that prices needed to stay high if the hotel was to cover its operating costs and return adequate profits to the resorts owners. Pam was in favor of using price as a tool to maximize income, even if that meant lowering prices to attract more business.

“Look,” continued Sofia, “if we are going to make significant improvements in our revenue and profitability, then strategic pricing in this property will have to involve an integration of costs and customers. Mark, Pam and all the others will have to come together.”

“You mean a compromise?” asked Damario.

“No, definitely not a compromise,” replied Sofia. “A compromise on our pricing would mean that we couldn’t fundamentally agree about our objectives or the value we offer our guests. That would just to lead to a lot of “Let’s find the middle-ground” pricing decisions. That’s unacceptable.”

“But based on what they each said in the meeting, I’m not sure we could even find a middle ground,” said Damario. “And I think the conflict made everyone else a little uncomfortable.”

“That may be true now,” replied Sofia, “but each of them, and perhaps some others, are going to have to let go of their preconceived notions and recognize that times have changed. We need everyone on this committee to understand and agree about what drives profitability in our industry today.”

“Is that even possible?” asked Damario.

“Of course it is. I have great faith in you to get the job done,” said Sofia. “And by the way, being uncomfortable in a meeting will be the least of all our problems if we don’t move quickly to right our pricing ship.”

“Aye, Aye, Captain,” replied Damario. “Will do.”

For Your Consideration

1.​ Assume you were Damario and that Mark, the controller, was privately discussing with you Pam’s meeting suggestion that, due to extremely competitive market conditions, prices at the resort needed to be reduced in order to increase the revenues needed to ensure its profitability. What would Mark’s response likely be? Would you agree with him?

2.​ Assume you were Damario and that Pam, the DOSM, was privately discussing with you Mark’s meeting suggestion that, due to the extreme financial difficulties faced by the resort, prices needed to be maintained or even increased, and the extra expenses earmarked for guest “freebies” offered so frequently by Pam’s department needed to be scaled way back to ensure the resort’s profitability? What would Pam’s response likely be? Would you agree with her?

3.​ Assume that the Barcena Resort operates three restaurants and a lounge as well as its 480 rooms and related amenities. In addition to the departments operated by the controller and DOSM, what other areas within the resort do you believe should be represented in Damario’s new committee? Explain your reasoning for the inclusion of each area.

4.​ Sofia is convinced that a “Let’s find the middle ground” pricing strategy would be detrimental to the resort. Based on what you know about prices, do you agree with her assessment? Explain your answer.

Answer 1

1. Assuming to be Damario - if mark would have personally discussed the competitive market conditions, prices at the resort needed to be reduced in order to increase the revenues needed to ensure its profitability, during the conversation I would have agreed with the fact about the market conditions, but surely asked him to that regarding the pricing strategy to increase profitability requires some more thinking from your side. So I would have partially agreed with Mark - as the major concern is profitability

2. Again assuming to be Damario - if Pam, the DOSM, was privately discussing with you Mark’s meeting suggested that, due to the extreme financial difficulties faced by the resort, prices needed to be maintained or even increased, and the extra expenses earmarked for guest “freebies” offered so frequently by Pam’s department needed to be scaled way back to ensure profitability - same as it goes with mark, I would have agreed with the fact that a pricing strategy needs to be defined to ensure profitability as long term success here lies in profitability and with that I would have assured PAM that - freebies offered wouldn't be scaled back, but pricing strategy for the resort needed to be worked out.

3. Assuming that the Barcena Resort operates three restaurants and a lounge as well as its 480 rooms and related amenities. In addition to the departments operated by the controller and DOSM, these areas are sufficient in Damario's new committee - other than that Damario needs to keep a track of surrounding properties or area near resorts which Barcena Resort may like to purchase in near future to expand, keeping track over these properties will help to ensure growth and profitability in future.

4.Sofia is convinced that a “Let’s find the middle ground” pricing strategy would be detrimental to the resort. But looking at Pam and Mark's opinions about pricing and need to get everyone on the same page - ''finding the middle ground " pricing strategy works best for everybody. Dynamic Pricing Strategy - serves the best solution to the problem. Dynamic pricing strategy- a strategy that works on demand and supply of that very period and prices to depend on that time basis, this pricing strategy considers several factors such as customers season, segments, peak time, competitors prices, etc and does not run on fixed prices, so this pricing strategy ensures more optimal and timely decisions and ensures profitability as well. With middle ground - dynamic strategy here can be opted and looking at the scenario it should work well, further this strategy can draw an agreement with both mark and pam.