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

Distribution channels

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

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)