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

Distribution channels

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

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
  • Seasonal rates
  • Day of the week variations
  • Re-negotiations based on demand
  • Surcharges for ad hoc groups + FIT on constrained days (above allocation)
Last Updated 24th July 2017