Proposal to Increase Rates at ASP

I. PROBLEM

How much rate increase should ASP implement without losing its competitive edge?

It is inevitable that at some point in one’s business, you will want to raise your rates to compensate the increasing overhead costs. Many businesses get started by offering a lower-than-average rate to entice
new customers and then slowly raise rates as their experience and perceived value rises. However, we tend to look at the market competitors as well. For ASP, currently we have more or less five (5) other
retreat houses which also caters to the same prospective clients ASP have. For lodging itself, ASP offers at a price range of 700 to 800 pesos. ASP costs much less expensive compared to other retreat houses
like Mirrador Jesuit Villa, Sta. Catalina, and St. Scholastica with lodging price rate ranging from 800 to 1,000 pesos. In comparison to these other retreat places however, ASP offers good quality service and
impressive amenities, if not better. It is imperative to say that an increase on the price rate is feasible. The only question which remains hanging is by how much, while still maintaining its competitive advantage
in the market.

II. AREAS OF CONSIDERATION

 Rates of other retreat houses

 ASP Overhead expenses and net income
 Increment of increase over the years
 Customer price vs value feedback

III. ALTERNATIVE COURSES OF ACTION

Increase in
Proposal Current Rate Proposed Rate Increase in %
Php
A 800 850 6.25% 50
750 800 6.67% 50
700 750 7.14% 50
AVE 7% AVE 50
B 800 875 9.38% 75
750 825 10.00% 75
700 775 10.71% 75
AVE 10% AVE 75
C 800 920 15.00% 120
750 860 14.67% 110
700 805 15.00% 105
AVE 15% AVE 112
 a. Increase of 7% or 50 pesos

b. Increase of 10% or 75 pesos

c. Increase of 15% or 112 pesos

IV. DISCUSSION

For proposal A which is an increase of 7% or 50 pesos (from 800 to 850 for lodging), ASP is still competitive over other retreat houses economically except for Betania Retreat House. Inasmuch as
Betania is less expensive by 50 pesos at a price rate of 800 pesos for lodging, it is notable that its electrical fee for use of equipment is at 250 pesos per day per equipment and charges 1,000 pesos for use of
conference room below 50 pax and 2,000 pesos above 50 pax respectively. On the other hand ASP’s proposed fee for use of electrical equipment is only 200 pesos per day and an affordable rate of 1,000 pesos
for the use of its conference room. All in all, proposal A covers a reasonable increase while at the same time still maintaining its price strategically competitive over other price rates in the market.

While we value a higher price increase to consequently increase profit as well, for proposal B at 10% increase, ASP’s price rate of 875 pesos would be higher than two (2) other competitors, namely Little Flower
Retreat House (850) and Betania (800). If we look at the prices for other amenities however, ASP is still conversely slightly competitive. Little Flower Retreat House charges P75 for free flowing coffee per day,
charges 1,000 pesos per day for use of electrical equipment, also 1,000 pesos for use of conference hall and requires 30% downpayment upon reservation. ASP offers a minimal amount for these services, if not
none at all. For the free flowing coffee, ASP only charges 40 pesos and a minimal fee of 200 pesos for electric equipment use. Although ASP requires 5,000 pesos downpayment for retreat booking, the
conference hall is free of use for its guests. Hence, proposal B may sound lucrative with a higher rate increase but, ASP is less competitive in price over other retreat places.

At 920 pesos package, proposal C still gives ASP a slight price edge over Mirrador Jesuit Villa (950), Sta Catalina (1,000) and St. Scholastica (1,000). However ASP boasts of a 2-person room with private
bathroom while other retreat houses only offer rooms with common bath despite the higher rates. Mirrador Jesuit Villa’s price rate for other facilities are higher than that of ASP as well. For the LCD projector
use, the latter charges 3,000 pesos per day while only 400 pesos for ASP and 300 pesos per day for electric equipment use for Mirrador while ASP only charges 200 pesos. Thus, proposal C sounds attractive
with higher price increase but ASP will be put in a detrimental position as to price competitiveness despite better amenity charges.

V. RECOMMENDATIONS

With more advantages for ASP and a promising competitive edge over other retreat places, proposal A is recommended with 7% increase from the current rate. It is quite a conservative figure but it
ensures that ASP stays competitive in the market.

With a projected gross annual sales of P6,206,400.00 (Please refer to Exhibit 1)with the recommended price increase, ASP should consider said price change.
Exhibit 1
Projected Gross Sales for 2018 with price increase (assuming 80% occupancy rate)
Current
Type of Room Proposed Rate No. Of Rooms Capacity Total Occupancy Gross Sales (assuming 80% occupancy rate for retreat booking twice a week)
Rate
Total Occupancy Weekly Monthly
per Room Occupancy Rate Annual Sales
Occupancy Rate Sales Sales
With Private CR 800 850 22 2 44 44% 35 35%
59,500.00 238,000.00 2,856,000.00
With common
750 800 6 3 18 18% 15 15%
CR 24,000.00 96,000.00 1,152,000.00
With common
750 800 5 2 10 10% 8 8%
CR 12,800.00 51,200.00 614,400.00
Dorm Type 700 750 14 2 28 28% 22 22%
33,000.00 132,000.00 1,584,000.00
TOTAL 47 100 100% 80 80%
129,300.00 517,200.00 6,206,400.00

Exhibit 2
Projected Gross Sales for 2018 without price increase (assuming 80% occupancy rate)
Current
Type of Room Proposed Rate No. Of Rooms Capacity Total Occupancy Gross Sales (assuming 80% occupancy rate for retreat booking twice a week)
Rate
Total Occupancy Weekly Monthly
per Room Occupancy Rate Annual Sales
Occupancy Rate Sales Sales
With Private CR 800 850 22 2 44 44% 35 35%
56,000.00 224,000.00 2,688,000.00
With common
750 800 6 3 18 18% 15 15%
CR 22,500.00 90,000.00 1,080,000.00
With common
750 800 5 2 10 10% 8 8%
CR 12,000.00 48,000.00 576,000.00
Dorm Type 700 750 14 2 28 28% 22 22%
30,800.00 123,200.00 1,478,400.00
TOTAL 47 100 100% 80 80%
121,300.00 485,200.00 5,822,400.00