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.