Price setting for tour operators requires a strong mix of marketing strategy and financial analysis. The people, accommodation and components that make up the experience/holiday you provide can be incredibly diverse and pricing strategies often evolve as a tour operator develops its brand and market share.
What to Consider When Setting Your Pricing Strategy
Setting the right price for your products or services can determine your success as tour operator, influence customer perception, and directly impact your bottom line. In this ever-evolving marketplace, mastering the art of pricing requires a keen understanding of various factors that come into play:
- How unique is your business? The more unique your product the more flexibility you will have to decide your pricing.
- What value added services do you provide that enhance the perceived value of your offering? Some examples include free parking, a purchase incentive such as champagne on arrival or discounted tickets to a particular attraction or eatery.
- What market do you want to attract and what position in that market do you want to establish? Research your target market in relation to product needs, price sensitivity, length of stay etc.
- What are your operating costs? Calculate your break-even point and therefore what your minimum pricing should be
for profitgoals (estimates of revenue, occupancy rates etc will be needed).
- What do competitors with similar products and services charge within your market? Competitors’ prices do influence the maximum rate at which your product can be sold but you must be aware of your own financial position (debt levels, cash flow etc) before you can decide whether you should compete on price.
- When launching it may be necessary to set prices lower than your longer-term pricing expectations in order to attract volume, credibility and establish your brand. As you become more established with regular bookings you can consider increasing prices.
- What is your overall marketing strategy? If you cater for the luxury traveller pricing may not fluctuate much at all but if you are targeting the budget traveller you will rely on volume of bookings.
Pricing Strategies Tour Operators Can Use
Mark Up Pricing Strategy
Set the prices of your holidays, tours and activities to ensure that you make a profit on each sale. Identify all of the costs associated with running your business which includes the time spent developing and promoting a holiday or experience.
The fixed costs include rent, building maintenance, any machinery and insurances. Variable costs include wages, energy, repairs, petrol, uniforms, bank fees, promotional and travel costs.
Mark Down Pricing Strategy
A mark down pricing strategy requires tour operators to mark down their prices in order to remain competitive.
It’s ideal during slower months. If the cost for your offering is normally £400 per person, then you might mark down your prices to £299 per person to allow you to (hopefully) earn some profit on each booking, while remaining competitive and keeping the business afloat.
It might even mean you generate more bookings than you would have without this promotional discount – and thus earn more income.
Tourists are increasingly turning to “packages” to meet all of their holiday needs - hotel, airfare, transfers, tours and activities all for one inclusive price. Developing packages with complementary tourism partners is a good way to stimulate demand and add value without having to discount.
Packages can also be used to target niche markets effectively, e.g. golfing holidays, food and wine tasting, beauty and relaxation etc.
You can use “disguised pricing” which hides the exact cost of individual components and also the extent of discount provided by contributing operators.
“Visible pricing” which gives your clients the flexibility to select their preferred package components according to their travel preferences and budget.
All tourism businesses should have a rack rate, an official rate before any discounts are applied. These are the “brochure” prices printed in advance of the coming season. The rack rate for activity and attraction operators is more likely to remain the same during a peak holiday season without any day to day discounting. However, accommodation providers will be changing their rack rate almost daily to reach capacity.
This is different price levels throughout the year to cover low and high seasons. These are usually the same date periods each year and apply for school holidays, public holidays or for local events where the dates vary each year.
Last Minute Pricing
A common pricing strategy for accommodation suppliers and tour operators to fill any last-minute gaps. It involves discounting prices according to take-up which are then promoted on last minute booking websites.
Discounts are often applied in the offseason or to assist with yield management but be selective in their implementation because it could become a fast route to reducing your profitability.
With last minute price deals, just select those where you really need more takers. Consider adding conditions to a discounted price like a minimum stay or number of travellers in the booking.
Tourists do become used to discounted prices and you therefore run the risk of not only making it harder to charge your normal rates, but it will also devalue your product.
Common Pricing Types
Per Person pricing - is a set price per person, commonly used by activity/attraction and transport operators, accommodation providers and campsites. Options may include an adult, child and senior citizen price.
Per Unit pricing - is a set price for 1 unit of the product, e.g. price per night. Usually, the advertised price is for 2 adults or 2 + child rate.
Single or double occupancy - is common for B&B’s, there is a single rate and a double rate (which is not double that of the single rate).