What factors influence pricing?
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 when selling a product can improve sales and profitability. Establishing a business link with sales intermediaries does involve some costs, commonly known as commission and are classified as a distribution cost.
Who's who in the distribution process?
- Retailer/travel agent – based in Australia or overseas and commonly known as a retail travel agent
- Wholesaler – 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, and should be added to the net rate to create a retail price.
Distribution channel commission
- International or domestic retailers who sell directly to a customer – 10 percent
- International or domestic wholesalers who sell to retailers, who then sell to a customer – 20 percent
- Inbound tour operators who sell to wholesalers, who then sell to retailers, who then sell to a customer – 25 to 30 percent.
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)