Insights on Travel from Costa Rica Expeditions’ Founder Michael Kaye and his Expert Friends.

Pricing in a Climate of Discounting

Yesterday I received  the email and attached outline below from my friend Kurt Kutay from Wildlands Adventures.  I thought you might be interesting in an insiders view of pricing issues in todays environment and got Kurts permission to share it with you.

I have definite views on the subject, but rather than start out by influencing the discussion, I think it would be more interested to get your comments first and then address them in a future post.

By way of disclosure Costa Rica Expeditions operates trips for Wilderness Travel and Geographic Expeditions, but does not operate for Wildlands Adventures.

Changing the subject,  I appreciate all the very thoughtful and enlightening comments on last weeks post about Trip Advisor.  I have decided to do some research on Trip Advisor. I will reveal what I find and coment on the comments in a future post.

Michael,

Allie, Ray (of Wilderness Travel) and I are leading a Collaborative Learning Session on “Pricing in a Climate of Discounting” at the ATTA Summit.

Attached is an outline I have crafted based on ATTA regional meetings that were held around the country last year and some additional thoughts and considerations of mine, Allie’s and from Jim Sano of Geographic Expeditions.

If you have a moment, I invite you to take a look at the attached and let me know if you have any further experiences and ideas you would like to share and I can express on your behalf as to what you have observed in the market and what you have done to manage pricing and sales in this increasingly competitive and discount-oriented market.

Attached Outline:

Pricing pressures, intense competition, disintermediation, transparency of the Web and more are forcing operators to look at new pricing models, whether straight discounting, variable pricing, making special offers or others. In the current business climate, consumer’s value expectations have risen and they’re likely to intensify.

We’ll explore the realities of the market and how it affects pricing, including the fact that pricing is now virtually visible to all, and then explore pricing strategies and solutions. Participants will share insights into possible models to investigate and specific tactics to implement, and explore their pros and cons.

What’s creating the climate of discounting?

1.   The economic downturn

  • Lower spending
  • Smaller market
  • Demographic impacts (ie. over 60 downturn, portfolio losses)

2.   Transparency

  • Web information access—over 70% of travelers use web for research
  • Media shift in listing inbound suppliers, hoteliers

3.  Disintermediation – shifting channels of travel distribution

  • DMCs, inbounds and hoteliers selling direct
  • Full service hoteliers with tour operations

4.  Fluctuating currency rates creates widespread pricing variability

5.  Consumer requests for price breakdowns and discounting expectations

6.  Pressures on agents/operators to make sales

Tactics to deal with the situation

1.  Creating travel incentives

  • Early sign up discounts, last minute sign up discounts
  • Online booking discounts
  • US Park Service free entrance days created record visitation

2.  Added value proposition

  • Selling experiences, knowledge and service vs selling a “product”

3.  Managing inventory and group size to achieve critical mass and profitability

  • Variable pricing—clients pay different rates gaining acceptance (ie. early booking discounts)

4.  Yield management pricing: cruises and hotels have occupancy requirements

5.  Achieving lower price points

  • Shorter itineraries, downgrading hotels, etc.
  • Negotiating better rates with downstream suppliers especially w/ volume

6.  Special niche pricing

  • Kids discounts to encourage family travel
  • Accommodating singles (negotiate discounts, budget single costs)

7.  Currency risk management

8.  Disintermediation goes both ways

  • Inbounds can sell direct to consumers
  • Outbounds go direct to lower chain suppliers
  • Outbounds favor inbounds that only wholesale, set prices and offer generous commissions

9.  Competitive price analysis

  • Know your competition, know your strengths and how to differentiate
  • F.U.D. – Fear, Uncertainty and Doubt

Benefits of home company: Safety, financial security, communication, pre-departure services, save time, customer-oriented.

Me again:

So what do you think?  Does this interest you?

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3 Comments and 0 Replies

  • It’s definitely an interesting topic, Michael. As both an intermediary for hotel/car rental/flight reservations in Cuba and a tour operator with our own specialized bicycle, motorycle tours (new) and a few other niche markets we’ve developed, the future of travel agents as intermediaries for some segments of our current travel offerings in Cuba is limited.

    Once the day arrives that hotel chains and car rental companies in Cuba are less limited in terms of being able to receive direct payments, the current need for the various layers of re-sellers will effectively be eliminated. The future of smaller, less powerful agencies in Cuba, such as ours, is not in the resale of hotel rooms, rental cars or flights (the last of which are basically a pass-through at this point anyway), but rather in being able to organize more complex tour arrangements which involve equipment or specialized knowledge or personnel with which the average travel agent is not armed.

    We offer discounts for groups of 10 or more travelers on the same itinerary, alumni discounts to repeat travelers on group tours, and a modest early booking discount to the first 4 travelers to book any cycle tour (the minimum requirement is 5 pax). We don’t offer last minute discounts as an incentive to fill tours as we feel it devalues our product for others who made an early commitment. For some tours, if you don’t reserve early there won’t be space anyway.

    Our single pricing in Cuba is very attractive since there isn’t a huge disparity in the room costs. In Prince Edward Island, however, the single accommodation costs are considerably higher and a single traveler on an independent tour has considerably higher transportation costs which aren’t shared either. Last year we began to try and encourage singles to match up their dates with other travelers and when this happens we have preferred pricing for singles. But the reality is that the costs are higher, and we can’t reduce our transfer charges by 1/2 if a single can’t be matched up with a travel companion.

    That’s all I have time for just now – we’re off on a motorcycle tour with a group of friends. But I hope there are some other responses on here as I for one am very interested in this topic and it’s one Abel & I have been discussing recently.

    • At October 01, 2010
      10:53:51 am
      Jennifer Fletcher said:

      Just like Cheryl, I need some terminology translation into English.
      “Disintermediation ” sounds like one of those new invented words that plague us lately – “Keep it simple”is my motto!
      It’s interesting to see some behind the scenes discussion.

      Discounts are all very well,but you tend to get what you pay for .There’s no free lunch – at least, very rarely.
      While you can’t spend money you don’t have,& buying lavish vacations by maxing out your credit cards is sheer folly, I’d rather pay a bit extra to have comfortable & reliable service.
      I have a friend who, by his own admission, is “cheap & proud of it”.Definitely not a needy person, he takes great pride in getting the least expensive deals.Somehow one can’t help but notice that all his travel anecdotes contain references to “what a good sport” his wife is.I suspect her version of things would be quite different from his!

      I definitely do think that singles should get a better break in prices.Some people like travelling alone or just ARE alone & should not be penalized for it by paying higher rates.

      Offering a better rate for early booking sounds reasonable.I’m not so sure that late-bookers should be given as good a rate as those who plan in advance.

      I think perhaps students could be given a good rate – especially “niche ” students : ecology, biology, art history,etc.,etc.But then, they probably do.

      Lower rates for tourists prepared to teach some English to locals,as you are planning, Michael, is a great idea that benefits everyone.

      • At September 30, 2010
        7:03:18 pm
        Cheryl Shnider said:

        Could you clarify some terms? What is disintermediation? How about Inbounds? Outbounds? and DMC’s?
        Thanks