Pick your own pricing strategy: 20 ideas

Sometimes it seems as if the only pricing strategy in the travel industry is deep discounting. Here are 20 other ideas!

I learned my first pricing lesson aged nine, selling handmade goods at home in our ‘pop-up’ shop, when my Dad rejected one of the 10p items for being too expensive. It really doesn’t matter how much it costs to make; the price is whatever the customer is willing to pay!

Despite that lesson, when I started working in travel I came across a lot of ‘cost-plus’ pricing – focused mainly on calculating costs, then adding a fairly standard mark-up. Prices went up if costs rose, regardless if customers would notice any extra value.

Things have moved on and ‘demand-based’ pricing is becoming the norm – although the saying that ‘the market sets the price’ is a little misleading, as companies aren’t powerless to influence outcomes.

Good pricing can transform your profitability, by which I mean finding the right mix of prices that your customers think are fair value. Successful pricing isn’t about manipulating people into overpaying top dollar – but it’s not necessarily about being the cheapest in the market either. A recent AITO survey showed price was only the fifth most important reason for choosing a tour operator, far behind factors like specialist expertise – so excessive focus on low prices (and endless discounting) sometimes harm profit and brand image needlessly.

For smaller businesses without a team of pricing specialists (or the systems to match), there are still many simple ways you can improve your pricing.

I tend to use a long checklist of ideas to find potential pricing opportunities, but I’ve picked a short selection that showcase a variety of practical actions you can take (though of course there are many other options to improve your pricing!). These are written with group tour operators in mind, but most principles are widely applicable. There’s no ‘one-size-fits-all’ pricing strategy, so pick your own tactics depending on what you want to achieve.

If you want to cut prices to attract more customers

Most tour operators intend to differentiate themselves with high-quality products and services that are unique in some way, so they can earn higher prices. But it can still be tempting to keep cutting prices! Boston Consulting Group says a common problem for travel companies is too much focus on matching competitor prices when it’s not necessary. How can price cuts be more strategic?

…Try this:

① Avoid across-the-board price cuts, which may harm as many products as it helps. Test which ones are most price-sensitive and focus cuts where small price decreases lead to a large rise in customers. Focus cuts on products that are designed for budget-conscious customers and any ‘standard’ trips that are easily compared to competitors, which give an overall impression of whether the rest of your range is good value. Don’t apply across-the-board price cuts that affect your premium, exclusive or niche products.

② Create low ‘From’ prices, by matching your pricing to low demand patterns, e.g. low season (but see #14 & #15!)

③ Create, or move product into, lower price bands – below ￡500, below ￡1000 and so on. Even if your main target is higher-value customers, having some entry-level price bands (such as short breaks) could entice first-time customers to try you.

④ Remodel trips to remove non-essential costs. To cut prices without cutting margins, set a target cost and identify which elements could be stripped out without compromising product quality. A shorter trip length might make the price accessible for more people, and high-cost features should only be included if they are genuinely valued by customers. Review your customer feedback: which high-cost elements never get compliments?

⑤ Change the price structure by ‘unbundling’ non-essentials and offering them as optional extras. Flexibility and customisation are attractive to many travellers, and not everyone wants to pay for specialist activities or extended beach stays, for example – but nothing central to the experience should be unpackaged. Those on a budget can buy the core product, while others can opt for the full experience.

If you want to escape the cycle of frequent discounting

Discounting is “addictive, to the consumer and the dealer” – but the yo-yo pricing creates uncertainty which can cause customers to delay booking (giving them time to shop around or decide not to book). A tour operator that frequently promotes deep discounts recently reported their average lead time between booking and travel has halved. Yet most operators want to lock in earlier bookings! So how could you make fewer offers more effective?

…Try this:

⑥ Set objectives and know what success looks like. Plan the percentage of revenue you will spend on discounts and how many weeks of the year various products will be discounted. For every offer, set targets for incremental sales and ROI, and know the uplift required to break even. Depending on your objectives, you might target a specific increase in web traffic, average spend, or percentage of loyal customers re-booking. Discounting should be disciplined.

⑦ Evaluate each offer and use the insights to design future offers. Measure if offers were more effective for certain products, markets, demographics or booking channels. Monitor the effect on complementary and non-discounted products, and any cannibalisation of sales that occurs in the post-offer period.

⑧ Replace ‘money-off’ with ‘value-add’ offers, where possible. Extend the customer’s total basket size by adding value – giving something extra for free – rather than reducing your income by discounting.

⑨ Correct over-priced products as early as possible, to reduce panicked last-minute discounting. Trips can have a sequence of different price points over time, but ideally the price seldom drops towards the departure date, so that early bookings aren’t discouraged.

⑩ Incentivise early bookings, to lock in sales and reduce late discounting. Alongside regular prices, El Camino Travel displays lower rates for ‘early sign up’; while Flash Pack offers lower prices to the ‘First 4’ bookers on each departure. But early bookers don’t always need to be offered money off: simple price guarantees can take away the fear of seeing a better price later or can assure customers that they will be refunded the difference.

If you want customers to know you offer value for money

With such a high volume of slightly different trips to compare in the market, it can be difficult for customers to get a clear impression of whether you offer good value – especially if your pricing isn’t equally competitive across your whole range. How can price perception be improved, without cutting prices?

…Try this:

? Even if you’re not the cheapest, highlight value for money. In their recent brochure, Contiki (not the cheapest) highlighted “Unrivalled value: You can't do what we do for less”. If your prices are higher because you’ve chosen to build in boutique accommodation, time-saving convenience or a higher ratio of expert tour leaders – keep these benefits top of mind by regularly featuring them in communications.

? Demonstrate how prices stack up against alternatives. In past brochures, Topdeck showed travellers how tours are cheaper than going it alone, by displaying the equivalent cost of independent transport + accommodation + food + activities for a popular itinerary.

? Break your total price into a price per day. ‘Southeast Asia from ￡89 per day’ is easy to grasp and compare to alternatives. It’s especially useful if your competitors offer shorter trips at a lower sticker price, but you offer better daily value on longer trips.

? Simplify your price points. Variable pricing that follows variable demand patterns is good for profitability – but avoid too many price points or an excessively wide price range for different departure dates of a trip. It makes high-value aspirational holidays look purely like demand-driven commodities and confuses the message about whether you always offer good value or not.

? Give some explanation for peak/off-peak price variations, as customers accept it more when it feels predictable and they know the benefits. Mention that peak dates usually mean they will benefit from amazing weather or more attractions being on offer, and that they can choose to save ‘in the green season’ when there are fewer crowds and the demand for accommodation is a little lower.

If you want to increase prices to improve profitability

…Try this:

? Increase prices when customer demand is higher than your operating capacity – especially if you know that availability is limited for similar competitor alternatives. Use a trip fill tracker to spot patterns and specific tour departures that are filling up ‘too early’.

? Offer incentives that nudge customers to consider a higher value booking – such as offers that only apply to bookings over a certain threshold value, or progressive discounts (an increasing percentage-off for booking a trip longer than 7 days, 14 days or 21 days).

? Develop new products where there are gaps in the market, to be able to determine your own price point without any direct competitor comparisons. Look for large price gaps where existing options are clustered around low and high price points – think of designer hostel brands, who spotted the large price gap in between budget hostels and hotels.

? Design a product range with different price levels: a ‘Good, Better, Best’ strategy. For example, Intrepid Travel has Basix, Original and Comfort levels. Introducing a higher-priced range can capture more income from customers who choose to trade up, but it can also improve sales of mid-priced products as it makes them feel like better value (simply giving customers control over choosing their own price point has the same effect).

? Add product features that are difficult to arrange independently, such as activities that require insider access or which need a large number of people to make the cost acceptable. You can add much more value for customers than it costs you at scale.

Your environment changes, your pricing should too

There are many other ways to improve your pricing, depending on your brand positioning. These are just a few ideas to kickstart more of your own (or contact me for more!).

Pricing needs to have some consistency and coherence, without swinging dramatically in different directions, so that your value for money is clear. But nothing stands still – customer habits and spending power change, product trends move on and new brands enter your market – so your pricing should evolve too. Keep testing and measuring, so you’re able to pick the combination of tactics that will fit your business goals.

Ideas, questions, comments or feedback? Let me know below!

Get in touch to discuss how I can help your brand get its pricing strategy right, or feel free to share this article with anyone in your network who would find it useful.

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