To be successful in the marketplace, a product must be priced accurately and competitively. This requires a clear understanding of the individual costs of all product components and their impact on total product price.
Factors influencing pricing:
Seasonality Fluctuations in business between high and low seasons.
Operating costs Includes general overheads, promotion and labour costs which can vary, depending on business peaks and troughs.
Competition This influences the maximum price for which a product can be sold.
Demand Generated by existing and potential customers.
Important points to consider when setting your prices are:
The total costs involved in getting the product or service to the market
Required profit margins
Price sensitivity of target markets
Commission levels and other distribution costs
Allowance for any taxes that are applicable
The research and statistical information that is available
Competitor analysis and competitive advantage
Market and image perception of the product and the region
The image of the business
The perceived value of the product
The quality of the product
Expanding the number of distribution channels selling a product can improve sales and profitability. Establishing a business link with sales intermediaries does involve some costs. These costs are commonly known as commission and are classified as a distribution cost.
Who’s who in the distribution process?
Retailer/travel agent Either based in Australia or overseas and commonly known as a retail travel agent.
Wholesaler Either based in Australia or overseas, wholesalers provide retailers with travel packages comprising of two or more products supplied by different operators.
Inbound tour operator Based in Australia and responsible for booking the ground arrangements on behalf of an international wholesaler.
Pricing products with commissions
Each distribution channel receives a level of commission which is generally a standard rate. These commissions should be added to the nett rate to create a retail price.
Distribution channel commission
International or domestic retailers who sell directly to a customer: 10%
International or domestic wholesalers who sell to retailers, who then sell to a customer: 20%
Inbound tour operators who sell to wholesalers, who then sell to retailers, who then sell to a customer: 25-30%
Dynamic pricing is a popular method of pricing in the tourist industry. Higher prices are charged during the peak season, or during special-event periods. In the off-season, hotels may charge only the operating costs of the establishment, whereas investments and any profit are gained during the high season.
Varying levels of dynamic pricing
Special event surcharges
Day of the week variations
Re-negotiations based on demand
Surcharges for ad hoc groups + FIT on constrained days (above allocation)