The Tropical Paradise Resort is located on the coast of an exotic Pacific island

Question

The Tropical Paradise Resort is located on the coast of an exotic Pacific island. Room rates are $300 per night, which includes free access to the pool, gym, and tennis courts. The resort also offers the following services:

Aerobics classes ($5 per)

Therapeutic massages ($40 per)

Scuba-diving trip to a nearby coral reef ($60 per)

Day trips to an island volcano ($100 per trip)

The average stay is five days. The hotel is considering two pricing options:

Charge the regular room rate and charge separately for the four services above

Charge a higher room rate, which includes the services

The resort’s objective is to maximize long-term profits by attracting repeat and new customers. Should they price their services separately or bundle them? Why? Besides prices, what other factors are important in your decision?

Explanation / Answer

Ans:

The Resort should use a combination of Separate Prices as well as bundled prices. Calculation of total price if all the other services are used by a customer once: Aerobics Classes 5 Therapeutic massages 40 Scuba-diving trip to a nearby coral reef 60 Day trips to an island volcano 100 Total 205 Average Stay is for 5 days Room Rate per day 300 Total room rate for 5 days 1500 Total cost including stay and other services = 1500+205 = 1705 As a bundled pricing, the Resort can have a bundled package wherein the complete services will be usable once along with room stay for 5 days at a discounted price of $ 1600. Also they should continue to charge the services individually at the current cost if the customer doesn't opts for bundled package. The objective of the resort is to maximize the long term profits by attracting repeated and new customers and this approach will help them to achieve their objective in the following way: As the Resort will be offering the bundled package at a discounted price, more of the customers will be inclined to take up that. This on the other hand will make the customers use each of the other services provided by the resort but only for once. If the customer will have a good experience with the other services when they use it once as a part of the bundle package they will be encouraged to use the same again during the course of their stay in the resort for 5 days. However, for subsequent usage the customers will have to pay separately which will earn the resort more revwnue. the idea behind this scheme is to entice the customers to use each and every service of the resort at least once so that they find these services very good and use them repeatedly. Besides price the most impotant factor in the decision will be providing of best of sevices to the customers. It would be of at most imprtance that the customers are traeted like gods providing them with the best of services which will enduce the customers to not only come repetatively to the Resort but also praise the services of the resort infront of their friends, clleagues and relatives which will result in more of new customers coming to the resort.

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