Travel Reference
In-Depth Information
is the same as the price of an airline ticket to the same destination, the choice may be determined
by the cost of getting to the railhead or to the airport in terms of money and time. This type of
decision may also be infl uenced by the age and agility of the passenger, by the passenger's
preferences for fl ying or not and many other considerations which do not appear to relate
specifi cally to monetary price. Another type of psychological pricing is what is known as 'point
pricing' where the price is held down below a certain threshold in order to make it more
attractive to the customer. This is applicable across the tourism industry: aircraft seats, hotel
rooms, meals and the courses of which they are composed may all use point pricing in some way.
We will examine some of these later in the chapter.
One important aspect of pricing in tourism is the use of prices to indicate quality and value
to the potential customer. This may be used in addition to any of the other pricing methods, but
again it is a common aspect of the pricing of experience goods; a high price signals superior
quality alongside the tangibles which are being used to promote the good. We can clearly see this
in action in the case of specialist holiday fi rms such as Voyages Jules Verne or Page and Moy.
The decision to use price as a signal in this way is very much a strategic decision because it has
implications for so many other areas of the marketing mix. This is how pricing can relate to
position in the market, of course, if the strategy of the fi rm is to position its brand in a way that
requires a particular pricing approach. Although it is possible to see price strategy in terms of
three potential price positions (premium pricing, value-for-money pricing and super-low
pricing or undercut-pricing, see Holloway (2004) and Cooper (2008), for instance) the approach
to pricing differs greatly from sector to sector and from brand to brand; examples later in the
chapter will illustrate this issue.
Price discrimination
Whatever strategic approach is taken to price setting in the tourism business, the aim ultimately
is to achieve the long-term objectives of the fi rm. The role of pricing is to extract the maximum
amount of consumer surplus from the market so that the fi rm is in a position to continue in
business and, if it is considered desirable, to grow. While a very high proportion of fi rms in the
tourism industry are small (independent hotels, travel agencies, restaurants, local guides, local
transport operators) we must not assume that all of them are content to remain small; many will
wish to expand, acquire other small businesses or merge with similar businesses up or down the
supply chain. Any kind of growth or expansion will require funds, and while large corporations
are able to raise funds more easily in the market, even small fi rms will want to ensure their long-
term future and it is impossible to do this if you are not making profi ts for your proprietors
or shareholders.
Extracting the maximum consumer surplus is done by means of price discrimination. The
most sophisticated version of price discrimination is seen in yield management systems, but these
are most readily understood by means of examples which we will explore below. There are
commonly three types or levels of price discrimination which it is useful to grasp because they
are all relevant to different aspects or sectors of the tourism industry.
First degree price discrimination, or 'perfect' price discrimination as it is sometimes called, is
the situation where the supplier knows what each consumer is prepared to pay for the good and
is able to charge every customer the highest possible price. This would capture the maximum
consumer surplus, but it is impossible to achieve in the real world, although there are some
examples which come close, such as Dutch or reverse auctions and haggling or arguing over
prices in informal markets. First degree price discrimination is an ideal to which to aspire, but it
is important to remember that it is the PRICE which changes, not the PRODUCT: we are not
