Travel Reference
In-Depth Information
that a strategic marketing approach is essential to the majority of tourism businesses because they
can use it to reduce their exposure to these dynamic infl uences to some extent, and pricing is
one tool which can be used to this purpose.
A recent study by Masiero and Nicolau (2012) points out that the role of price in determining
the response of the market to tourism products is particularly complex, and brings the analysis
down to the motivations of individual tourists for the activities they intend to consume during
their tourism experience as the main determinants of price sensitivity. They even fi nd that to
some extent tourism activities can be treated as a normal good, for pricing purposes. This
demonstrates clearly the complexity of the role price plays in the tourism purchase decision and
shows the importance to the tourism business of understanding the consumer's requirements as
fully as possible. Underlying all the studies of tourism pricing and the perceived relationship
between prices and quality lies a substantial literature in consumer research; an interesting
example can be found in Kardes
et al
. (2004) using an experimental approach to understanding
how consumers process price information.
While tourism marketing research has recently concentrated on the rise of Internet and social
marketing (Fleischer and Felsenstein 2004; Garin and Amaral 2011; Rambolinaza 2006), the ease
with which prices can be changed and pricing strategies be adapted to changing markets has not
been fully recognized in the literature. In addressing fi rst of all the basics of price setting and then
by means of examples considering the range of pricing options available in different sectors of
the tourism industry, we intend to demonstrate that while the tourism industry is adapting to
challenging market conditions and utilizing every conceivable pricing strategy, there are still gaps
in the research approach which need to be fi lled. Sector by sector, different pricing strategies are
dominant, essentially because they are driven by different overall business strategies.
Price setting
An understanding of how businesses set prices, and why they use the methods they do, will set
the strategic use of pricing in context. The most basic method of setting a price for a product or
service is to determine what it costs to produce and then add on a proportion to provide a profi t
(cost-plus pricing). This sounds like a relatively easy process; unfortunately, it is often diffi cult to
determine exactly what the costs are or are likely to be, especially in a volatile context such as
tourism. Costs may also vary greatly among competitors, making price-setting according to what
competitors are charging also a risky way to decide prices. Another method is to decide how
much profi t is required from the operational investment and to design the product or service so
that a certain sales volume will deliver this margin at a given cost. Then there is value-based
pricing, where the price is determined by the value the product or service gives to the consumer,
even if the cost of production is very much lower: this method is unlikely to be relevant to a
tourism business, but it is possible to imagine, say, a specialist tour operator using it for an
extremely new or different type of holiday.
Whichever of these basic approaches is used, however, there are also the psychological
implications of price to be considered within the overall pricing model. Especially in the case of
services or experience goods such as tourism products there are psychological as well as monetary
prices. Many aspects of time are important to tourism consumers, such as the lead time between
booking and taking the holiday (they may be prepared to pay more to book in advance and
secure the holiday they want) or the amount of time they must travel between home and the
holiday resort (they may want to begin consuming the sand, sea and sun as quickly as possible,
so prefer to pay for a short-haul destination rather than a long-haul one). We must also consider
issues of convenience: supposing the price of taking a railway train from home to the destination
