Pricing Strategies for your travel and tourism products.

Do you have a pricing strategy for your travel products? I believe that the pricing of your travel products is both an art and a science.

This Spring, I read Smart Pricing by Jagmohan Raju and Z. John Zhang. It is an interesting book that covers multiple pricing strategies for businesses. The book got me thinking about how travel businesses should price their products and how I priced travel products in the former travel businesses I operated and the strategies I used to successfully build two travel companies.

I have recently published a marketing strategy I developed called the Automated-Booking Markup Strategy, that combines a proven website marketing tactic with a pricing strategy. I discuss this strategy at the end of the article.

Zhang says, “that when it comes to pricing, some estimated that only 8% of American businesses can be considered sophisticated players.” So most businesses don’t have a pricing strategy for their products.

There are three types of traditional pricing strategies in business. Cost + pricing, competition-based pricing, and consumer-based pricing.

In summary; cost + pricing takes the average cost of the product then adds a markup, competition-based pricing confirms the prices of its competitors, then sets the price of the product at the same price of the competition or either a little above or below, consumer-based pricing looks at a target customer and tries to determine how much that client type will pay for the product, then prices according to how much that target customer will pay. In 1994 my wife and I operated a bed & breakfast-fly fishing lodge called the Yellow Breeches House in Boiling Springs, Pennsylvania. The house was modern inside and decorated in fly-fishing decor. The Allenberry Resort a high-end resort with 75 rooms and cottages was located ¾ a mile from the house. Three traditional B&Bs within walking distance of the house were located in the village.

My target market client was business-executives from Washington DC/Baltimore, Philadelphia, and NYC areas that loved to fly-fish. I wanted to cater to the suits on the weekends and the die-hard fly-fishermen during the middle of the week. At the time the three local B&B’s sold rooms for $60-$80 a night. The resort sold rooms from $75-$100 a night.

We had 5 rooms at our B&B and I priced the rooms in our first year of business at $99, $109, $139 and $195 (2 room suite). Remember this was 1994 and everyone told me I was crazy for pricing the rooms so high. Our prices were way above the local B&B’s that were literally right next door to us. My pricing strategy was a combination of competition-based and consumer-based pricing.

My pricing strategy was pure positioning. I wanted to position the house against the resort and sell rooms slightly higher than the resort making our lodging the most expensive in the area. My sole reasoning for this pricing strategy was that “executive” type buyers pay first class prices. I knew from research that my target client from the three cities/areas I was targeting with my marketing and advertising, paid for rooms that cost $100-$200 per night. My target client rarely paid under $100 per night. My pricing strategy worked and we successfully acquired the type of client we wanted and we sold out every weekend and we acquired the die-hard fly-fishermen during the mid-week. Sometimes we discounted the rooms during the mid-week to reach the non-executive types but this wasn’t our #1 focus.

If you don’t have a pricing strategy take time out from your business to review just exactly how and why you price the products the way you do. Review the traditional pricing models above and see if you can find a model that one reaches your target client and two positions you how you want to be positioned against your competition. The easiest way to grow sales and or increase profitability in your travel business is by changing your pricing. The Automated-Booking Markup Strategy is a proven website marketing tactic and a pricing strategy combined. The Automated-Booking Markup Strategy increased annual profits in my last online travel business by more than 10% and in the last three years prior to acquisition of the company we increased sales by 33%, 74% and close to 100% respectively.

The Automated-Booking Markup Strategy will increase bookings and profits for your travel business and I guarantee it. The power behind the Automated-Booking Markup Strategy is that it creates urgency for buyers to return to your website and buy your travel products. Literally every week ON-schedule you will receive new reservations.

The Automated-Booking Markup Strategy works for online travel businesses, tour operators, travel agencies, travel portals, hotels, motels, B&Bs, guides, and any business in the travel and tourism industry that accepts reservations or bookings online.

Source: Tips from the T-lists by Mark Zitto

Uncovering Billions in 'Hidden Profits' for Airlines

Pricing is one of the most powerful -- yet underutilized -- strategies available to businesses. A McKinsey & Company study of the Global 1200 found that if companies increased prices by just 1%, and demand remained constant, on average operating profits would increase by 11%. Using a 1% increase in price, some companies would see even more growth in percentage of profit: Sears, 155%; McKesson, 100%, Tyson, 81%, Land O'Lakes, 58%, Whirlpool, 35%. Just as important, price is a key attribute that consumers consider before making a purchase.

At most companies today, pricing is a mix of marking up costs, matching competitors, and doing things "the way that they have always been done." A simple change in the way that managers think about pricing can reap a financial windfall. The key to better pricing is to "think like a customer" and set prices to capture the value that consumers place on a product or service. The beauty of focusing on better pricing is that prices can be changed on Sunday night and new profits can start rolling in as early as Monday morning.

Consider airline travel. On a packed cross country airline trip, how much would you pay for the benefit of not having someone sitting next to you in the middle seat? No airline has been able to capitalize on the tremendous value that passengers reap when someone is not squeezed in next to them. For me, an empty middle seat equates to enjoyable flight: no jabs and plenty of room to spread out my work materials. It's almost as good as first class.

Today, it's generally luck that determines which middle seats remain vacant at take off. When a flight is not sold out (which is often), some passengers are "luckier" than others. Why not start charging passengers for this added value?

One way to essentially guarantee that no one will sit in the middle seat is to simply purchase the middle seat, as some travelers do on international trips. However, there is another, lower priced, "no middle seat" option that may make sense to both airlines and consumers.

Here's my thinking: suppose two people book a trip and take the window and aisle seats. For, say, $100, the airline will "hold" the middle seat and designate it as one of the last seats to be sold. If demand ends up high, the airline will sell the middle seat to reap full revenue and refund the initially paid $100 option fee. If the plane is not sold out, the middle seat remains open. The benefits of offering a "no middle seat" option are two-fold: consumers have the opportunity to boost their chances of enjoying a relaxing flight and airlines reap revenue from unused capacity.

Source: The Streets by Rafi Mohammed


Amazon keeps prices on Ebooks artificially low with new loyalty system

One of the success factors of the Kindle ereader, is that many American bestellers are available in a digital version for less than 10 dollars. At first, Amazon determined the ebookprices themselves, using the wholesaler model. However, the pressure of the publishers made the retailer decide to switch to the agency model where the publisher determines the prices. Amazon is trying to find another way to keep the ebookprices low.

The American publishers want to master their own price policy, as price is a complete part of the marketingmix. Amazon-boss Jeff Bezos has every interest in keeping the prices for ebooks low, so he can move consumers into choosing the Kindle platform for their ebooks. The retailer came up with a smart move. He offers the publisher 70% of the royalties that Amazon makes on the sales of the ebooks. But to get 70% of the royalties the price for an ebook needs to be under $10.

It is nice to see that different kinds of mechanisms are being brought to life, that forces publishers to think about their pricestrategy for ebooks. Otherwise it is also weird that retailers can enforce this way such a market power!

Eén van de succesfactoren van de Kindle ereader is dat veel Amerikaanse bestsellers in digitale vorm voor minder dan 10 dollar verkrijgbaar zijn. Aanvankelijk stelde Amazon onder het wholesaler model zelf de ebookprijzen vast, maar onder druk van uitgevers besloot de retailer over te gaan op het agency model, waarbij de uitgever de prijzen bepaalt. Amazon probeert nu op een andere manier de ebookprijzen laag te houden.

Toen de Kindle eind 2007 op de markt kwam waren er direct al tientallen boeken uit de bestsellerlijst van de New York Times voorhanden als ebook, de meesten onder de ‘magische’ tien dollargrens. Veel mensen verbaasden zich over deze lage prijzen, vooral in vergelijking met de hardcover versies, die vaak meer dan het dubbele kosten. Het waren echter niet de uitgevers die deze lage ebookprijzen entameerden, maar Amazon, die als wholesaler de ebooks inkocht van uitgeverijen en die tegen een zelf vast te stellen verkoopprijs ging aanbieden.

Dat zette echter kwaad bloed bij Amerikaanse uitgeverijen, die hun eigen prijsbeleid willen hanteren, prijs is immers een integraal onderdeel van de marketingmix. Onder druk van een paar van de grootste uitgevers die dreigden hun ebooks terug te trekken besloot Amazon daarom over te stappen op het agency model, waarbij de uitgever de verkoopprijs van de ebooks kan vaststellen.

Amazon-baas Jeff Bezos heeft er echter alle belang bij de ebooks niet te duur aan te bieden, om zoveel mogelijk consumenten ertoe te bewegen te kiezen voor het Kindle platform. Daarom heeft Amazon een slimme list bedacht, om het gros van de ebooks toch onder de tien dollar te kunnen blijven aanbieden: vanaf vandaag keert de retailer namelijk 70% royalty’s uit over de door hen verkochte ebooks, in plaats van de 30% die eerst van toepassing was. Maar om in aanmerking te komen voor dit verhoogde royaltypercentage moet de verkoopprijs van het ebook wel onder de $10 liggen. Voor ebooks met een hogere verkoopprijs geldt nog steeds het oude 30% tarief. Dit is niet de enige voorwaarde die de internetreus oplegt; zo moeten uitgevers de ebooks beschikbaar maken in alle regio’s waar ze de rechten voor hebben en de verkoopprijs van het ebook moet minstens 20% lager zijn dan de laagste prijs die voor het fysieke boek wordt gevraagd. Naast nog enkele andere voorwaarden worden ook nog de digitale verzendkosten afgetrokken van de opbrengst (15 dollarcent per MB).

Enerzijds is het goed om te zien dat er mechanismen in het leven worden geroepen die uitgevers nog eens goed laten nadenken over hun prijsstrategie voor digitale boeken, aan de andere kant is het uiterst merkwaardig dat een retailer op deze wijze zoveel marktmacht kan afdwingen.

Sommige boeken – of ze nu op papier of digitaal worden uitgegeven – vragen nu eenmaal meer tijd en onderzoek, om over redactie en vertalen nog niet te spreken, dan andere boeken. Dat moet zich kunnen vertalen in een hogere verkoopprijs, maar dat wordt nu bestraft door een marktpartij die alle (soorten) ebooks op één lijn zet – chicklit naast literaire meesterwerken, scripties naast gedegen wetenschappelijke onderzoeken. En dat is uiterst kwalijk. Het is dus wachten op een nieuwe revolte, of op partijen die Amazon met gunstiger voorwaarden de loef gaan afsteken.

Source: Eburon Academic Publishers