Companies in the tourism industry often produce products that are very rarely identical due to location, individuals, and components which that is composed of the experience they offer to a tourist. This will, therefore, be absurdly diverse and the costing strategies can change as a tourism enterprise develops their brand and market share. In most cases, star rated companies for accommodation often provide a general guide for tourists on what will be the cost associated with their tour. It is very important for companies to consider different factors before setting their costing strategies. The first thing they should consider is the uniqueness of the business, that is, if the tourism product provided by one company is very unique it implies that the company will be very flexible in setting the costing strategies. The companies should also focus on the market that they want to attract and the position that they wish to establish in the market (Walker, Damanpour and Devece, 2010, p. 370).
The companies should consider the operating cost which includes the break-even, revenue estimates, and the occupancy rates. However, for many companies in the tourism industry cost setting is often market based which simply mean that they will consider what other competitors with identical products charge but being competitive is not driven by price but rather it is product driven. Before developing costing strategy, it is important for the management to have break-even knowledge but for new companies that venture in the tourism industry, it is recommended that their price is set lower than what they expect to be their future price which will, in turn, attract credibility and establish a quality brand. The costing strategy will be composed of different aspects such as rack rates which include the full rate prior to the application of any discount. Other factors include seasonal pricing and the last minute pricing (Walker, Damanpour and Devece, 2010, p. 378).
The companies in the tourism industry will, therefore, apply different pricing strategies, for example, cost-plus pricing. This will be used to establish profit margin of a business and the margin will be built directly into the price of the product or service. Therefore, this strategy will force the company to compute the cost to deliver a good or service which is then added to the margin. This kind of strategy does not consider the mind of a customer, in this case, the tourists. Another strategy method is the competitive pricing strategy. In this case, competitive pricing does not stress on either the cost or the tourists but it focuses on the existing market of the goods and services being produced by the company. Therefore, it will be important to analyze the pricing strategies of different competitors which will help in establishing a pricing range. The range should include both the high end and the low end which implies that the price of the goods and services produced by the company should fall in between the bookends and this will create a fair competition.
Another strategy is the luxury pricing strategy that focuses on the aspirations and the goodwill of the customers than anything else. Another costing strategy is the rate-based pricing which is also referred to as hourly pricing and it is mostly used by companies that provide different tourism services. In this case, the business will be required to trade time for money and there is no hour of work that will pass without compensation. Customers might not be pleased with this costing strategy because they believe that the organization is only after their money and not in the provision of goods and services. The other strategy is the project-based pricing which includes the flat fee arrangement which is being agreed to at the beginning of a project that is being initiated by a tourism company. The owners of the business have to make an estimation of the time it will take for the project to be completed which will allow them to set the appropriate cost needed (Frey and George, 2010, p. 625). This costing strategy is more effective when combined with other pricing strategies so that the project could not just be finished quickly but with a high quality result. Another costing strategy is the value-based pricing strategy which focuses on whether the customers can and will pay. This pricing strategy is considered to be a client-based pricing strategy methodology to pricing. The determinant factor in this costing strategy is how much the tourists are willing to pay instead of how much is the production cost of a good or service. Another costing strategy that should be used is the tiered pricing. This kind of strategy allows customers to decide on which version of the same good or service is better. This costing strategy provides a yes or no option to the customer and this gives them a chance to choose what they believe is the best. Services costing strategies can be very challenging because the value is derived from the ability of the company to deliver quality services. Tourists will, therefore, depends on aspects such as reviews about the services being provided before they become willing to buy the services. Consequently, customers should be given necessary information that outlines the past feedbacks from other customers.
Budgeting and control system
The budgetary control in the tourism business involves the management and accounting control where every operations and result are predicted and the actual outcomes are compared with estimates of a budget. The company should, therefore, focus on different types of the budget that will assist in presenting the financial plan involving the revenue, expenses and the capital of the business. The first type of functional budget that should be adopted by a company in tourism industry include the sales budget. This kind of budget is analyzed between goods, time and areas. Through the reference provided by the past figures and with the help of information obtained from the sales department a prediction of the expected sales for the coming period can be made. Therefore, sales budget is very important such that other budgets will heavily depend on it (Østergren and Stensaker, 2011, p. 160).
The company should then focus on the rational efforts to create a conducive sales budget that can be achieved at the end of the financial period. Another important budget is the production budget which is prepared immediately the sales budget is completed. It is mainly designed to assist a tourism enterprise in identifying a quality of products that must be produced. Another budget is the raw material budget which displays the quantities of materials that are required to establish a budget production. It shows the estimated cost of material to be acquired and how much time it takes to supply the raw materials. The company should also focus on the direct labor budget which indicates the anticipated direct labor requirements which are needed in conducting the budgeted result. The direct labor cost can be estimated after the review of the normal hours worked and the quantity of the work delivered by every worker depending on the current wage rate.
The management control system in a tourism business encompasses a framework that combines and applies information to analyze the performance of the resources of the business, for example, human, physical and financial resources. The control system will tend to affect the behavior of the business resources in order to implement different costing strategies. Nevertheless, the business might decide to either use formal or informal control system. Different management accounting control system will encompass full cost accounting, differential accounting, and responsibility accounting. Management accounting control system will involve collection of practices, for example, budgeting costing. It also involves the methodical application of management accounting to product reporting.
Performance Management Techniques
There are different performance management techniques that are suitable for the tourism industry. The first technique is defining goals which simply implies setting organizational goals. The individual goals should also go hand in hand with the organizational goals. The process of setting objectives should be a collaborative process where both the managers and employees are involved. This will assist in the establishment of a wide strategy of the business and the individual objectives have to be formed that reinforce the main strategy. Main job functions and obligations which includes personal and shared have to be addressed using effective goal setting systems. The goals of the business must be specific and which implies that it should direct the workers to exactly what they are expected to do. The goals should also be measurable and be able to motivate workers toward the accomplishment of the set goals (Gruman and Saks, 2011, p. 130).
Another method of performance measurement is the monitoring of the progress on goals. Managers must be aware of the progress of each worker toward achieving the organizational goals. This will allow the manager to come up with coaching strategy especially if workers have missed a goal target. In this case, managers might be forced to apply different rewarding and motivational techniques to make sure that workers are satisfied to the extent of working toward achieving organizational objectives. It is also very important for workers to monitor their own progress on goals. This important is very vital in the appraisal process to notify management team about the steps that should be followed for the goals to be achieved. Another performance management technique is the appraisals process. Managers are required to come up with a performance appraisal process that encompasses listening, providing a constructive response and observation if they want their workers to perform better.
The performance management assistance used here encompasses writing assistants and coaching techniques to assist managers in obtaining the “right words” which will provide a constructive review of the performance of workers. The most vital section in appraisal process is providing a timely feedback concerning what the worker has successfully acquired and still desires to learn more to provide an opportunity for the worker to create these skills (Gruman and Saks, 2011, p. 134). The alternative that will fit the nature and features of this industry include the pay-for-performance compensation. This is a performance management technique which is very important at retaining and acquiring other top talents and. This technique will connect the workers with objectives and aims of the organization. Management should also motivate and reward top performers. However, the underperformers should be developed so that they can become important assets to the organization. Therefore, I recommend that organizations in this industry should employ the pay-for-performance strategy because it considers both the best and poor performing employees.
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