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
- Seasonal rates
- Day of the week variations
- Re-negotiations based on demand
- Surcharges for ad hoc groups + FIT on constrained days (above allocation)