E-Distribution

In this chapter we're going to look at payment: how customers pay for services and how to decide on the price to charge for your services.

Payment methods

The following payment options are possible:

• Online payment when booking - either by credit card or payment gateway e.g. PayPal
• Cash on departure
• Credit card on arrival or departure
• Bank transfer, usually for pre-booking
• E-wallet and mobile payment apps

Payment methods are evolving fast. Currently most international travellers choose to pay by credit card - either online before arrival or manually on departure.

Various forms of e-wallet and mobile payments are becoming available and popular, especially with the younger generation.

Giving customers a choice of payment method, and making it as easy as possible for them to pay, may give you an advantage over your competitors if they aren’t able to offer a similar choice. For example: although offering credit card facilities will come at a cost to you, this convenience is expected by your guests and you could lose business if you don't offer it.

Whichever payment method(s) you choose to offer, make sure that your customers know ahead of time what their payment options are. This could avoid unpleasant check-out experiences which may stop them from returning in future. For example, consider sending a email through your OTA to highlight this point when a booking is made – this is common practice on Booking.com.

Price setting

Setting your prices may seem like a simple task, but it actually requires thoughtful strategic planning. Some factors to know before being able to set your price are:

Operating costs

Operating costs are one of the more non-negotiable aspects of pricing your tourism business; you need to cover these expenses or else you will go out of business. Operating costs are broken into two categories: fixed costs and variable costs.

Fixed costs

These are expenses that are constant regardless of how many bookings you get. Fixed costs include things like rent, insurance, buildings and machinery, salaries, and other operational costs that are required to run your business.

Variable costs

These are the costs that change depending on the number of services or bookings sold. Variable costs include things like utilities, maintenance costs, booking commission and marketing.

Remember to include your distribution costs. This can vary depending on what channels you use:

• OTA’s such as Agoda, Booking.com or TripAdvisor charge a commission (a variable cost)
• Channel managers usually charge a fixed monthly fee (a fixed cost)

Consider both fixed and variable costs and make sure to price your products or services above your costs in order to keep your business profitable.

Break-even point

If you can accurately forecast your costs and income, conducting a break-even analysis is a matter of simple math: a business has broken even when its total income equals its total expenses.

At the break-even point, no profit has been made, nor have any losses been incurred. This calculation is critical for any business owner, because the break-even point is the lower limit of profit.

The break-even can be expressed as:

• monthly income needed to stay profitable
• minimum price to charge per booking.

Seasonality

Is your business or are certain products seasonal? In other words, is there a peak season for your offering? If so, one strategy is to discount your offerings for the offseason, as so many businesses in Arugam Bay are already doing. Most travellers won’t want to pay top prices for products in low season, so reflect this in your pricing strategy.

Beware: do not discount below your break-even, just to get rooms filled. If you will be reducing for the off-season, you might need to increase in season to compensate. Discounting needs to be done carefully, looking at your entire year's figures.

Competitors’ prices

Another useful thing to consider when setting prices for your business is what your competitor's i.e. other businesses like yours, are charging.

If you haven’t already, now is the time to check out your competition. Compare their offerings to your own and determine differences. Take into account factors like location (e.g. proximity to the beach or places of interest, views, etc) and value-adding benefits. Keep your pricing similar to competitors or be able to justify your higher price.

Beware: too many businesses determine their prices only by looking at competitors. You must first know your breakeven. Then calculate: "If I reduce my price slightly, will I get enough of an increase in customers to compensate for the reduction in income per customer?"

Capacity

When pricing your tourism products, you must determine your capacity.

How many guests can you host when you are at full capacity? Your occupancy ratio is the number of guests or rooms that are occupied at any time compared to your full capacity e.g. if you have 4 rooms available and 2 are booked then you have an occupancy ratio of 50%. Depending on how much you charge per guest, you may have to raise or lower your pricing.

Beware: Do your calculations on a realistic occupancy ratio. You can never expect to be fully booked all of the time. So decide in advance: are you aiming for an occupancy ratio of 60%, on average, across the year? (This is a realistic number to aim for.) Or are you aiming at 80% or higher, on average, across the year, taking season and off-season into account? (This is probably not realistic.)
Source: https://www.rezobx.com/5-tips-for-pricing-your-tourism-products/

Summary

• Currently most travellers choose to pay by credit card - either online before arrival or manually on departure.
• You need to cover operating costs or else you will go out of business. These may be fixed costs or variable costs.
• A business has broken even when its total income equals its total expenses.