Questions to ask when setting a pricing strategy
- How unique is your business? The more unique your product the more flexibility you will have to decide your pricing. (If you struggle to answer this, you might want to go back to the e-Content course.)
- What value added services do you provide that enhance the perceived value of your offering? Some examples include free surfboard or bicycle use, free parking, a purchase incentive such as drinks on arrival or discounted tickets for a local tour or massage spa.
- What market do you want to attract and what position in that market do you want to establish? Research your target market in relation to product needs, price sensitivity, length of stay etc.
- What are your operating costs? Calculate your break-even point and therefore what your minimum pricing should be for profit goals (estimates of revenue, occupancy rates etc will be needed).
- What do competitors with similar products and services charge within your market? Competitors- prices do influence the maximum rate at which your product can be sold but you must be aware of your own financial position (debt levels, cash flow etc) before you can decide whether you should compete on price. When launching it may be necessary to set prices lower than your longer-term pricing expectations in order to attract volume, credibility and establish your brand. As you become more established with regular bookings you can consider increasing prices.
- What is your overall marketing strategy? If you cater for the luxury traveller pricing, may not fluctuate much at all but if you are targeting the budget traveller, such as backpackers, you will rely on volume of bookings.
Pricing strategies
Mark Up pricing
Also known as cost-plus pricing: take the cost price and then add a profit margin.
Set the prices of your accommodation, tours and activities to ensure that you make a profit on each sale.
Identify all of the costs associated with running your business: the fixed costs include rent, building maintenance, any machinery and insurances. Variable costs include salaries, energy, repairs, fuel, uniforms, bank fees, marketing costs.
Competitive pricing
This strategy consists of setting the price based on what your competitors charge. This method relies on the idea that competitors have already thoroughly worked on their pricing. (But have they really?)
- You could charge the same price as your competitors, or
- you could charge a lower price (but still ensuring that you are profitable) in the hope of attracting customers, or
- Your business- brand reputation may allow you to charge a higher price than the competition if it is a strong and established brand, known for its quality and service.
Break even pricing
This is a strategy focused on penetrating the market by keeping the price low enough that the business is neither in profit nor in loss. Obviously this is not sustainable, but the aim may be to attract future business. Use with caution.
Promotions
Promotional discounts are often applied at certain times to increase bookings, but be selective in their implementation because it could become a fast route to reducing your profitability.
Tourists do become used to discounted prices and you therefore run the risk of not only making it harder to charge your normal rates, but it will also devalue your product.
Here are some promotional strategies where discounts are applied:
Seasonal pricing
This is different price levels throughout the year to cover low and high seasons. High seasons are usually the same date periods each year and apply for school holidays, public holidays, festivals or for local events where the dates vary each year.
A markdown pricing strategy where tour operators mark down their prices in order to remain competitive is ideal during slower months. You might mark down your prices to allow you to (hopefully) earn some profit on each booking, while remaining competitive and keeping the business afloat.
It might even mean you generate more bookings than you would have without this promotional discount - and thus earn more income.
Last-minute pricing
A common pricing strategy for accommodation suppliers and tour operators to fill any last-minute gaps. It involves discounting prices according to take-up which are then promoted on last minute booking websites. With last minute price deals, just select those where you really need more takers. Consider adding conditions to a discounted price like a minimum stay or number of travellers in the booking.
Early-bird pricing
In order to encourage guests to book months in advance, you could offer a discount for bookings made early. Limit this to a specific period or maximum number of bookings.
Stay/Pay
This promotion offers free services or accommodation to entice customers e.g. stay for 5 nights and only pay for 4, or pay for 3 activities and get a 4th for free.
Source: https://blog.blackcurve.com/pricing-strategies-for-tour-operators-and-online-travel-agents
Summary
- Mark up pricing: Set the prices of your holidays, tours and activities to ensure that you make a profit on each sale.
- Competitive pricing: This strategy consists of setting the price based on what your competitors charge.
- Promotional discounts are often applied at certain times to increase bookings, but be selective in their implementation.