Setting pricing for Luxury tourism operation is a strong amalgamation of financial analysis and marketing strategy. Can there be any formula for developing pricing for luxury tourism businesses?

The answer is - Not really. Luxury tourism products are rarely identical, often because of location, but also because of the clients and the components that constitute the experience you provide to the traveler.  This can be extremely diverse and pricing strategies should evolve as a tourism business develops their brand and market share. The usual star ratings for accommodation just gives a general guide for travelers on what the pricing could be – they are not the only set criteria.

Pricing Strategy

So the purpose of this write up is not about helping you with a readymade formula to devise the pricing, but more of an outline of the things that should be considered, pricing strategy, components of your different pricing types including the ways to stimulate demand.

Points To Consider While Setting The Pricing Strategy

  • Is your business unique?  The more unique your tourism product is, the more flexibility you will eventually have to decide your pricing.
  • Do you also provide value added services inclusive of the experience?
  • Which markets do you want to attract?
  • What are your operating costs margins?
  • Invariability, for the most luxury tourism businesses setting the prices will be more market based – i.e., what are the pricing strategy for your competitors with similar products and services?  Remember that, ideally being competitive is not cost driven, it’s always product driven. 

Where To Start

If you are aware of your break-even point, you are good to go, but on launch of a new luxury tourism business it may be a situation that pricing is deliberately set below than your eventual longer term pricing prospect in order to attract greater volume, with overall target of enhancing credibility and establishing your brand. 

Pricing Components

The pricing strategy could be made up of the following components:

Rack Rates

All luxury tourism businesses must have a rack rate – i.e., the  “base rate” before any discounts or concessions are applied and normally is what is passed on to wholesalers and published on brochures for the upcoming season.  Obviously for the partners offering activity and attraction teh full rate is more than likely to be charged all the time without potential discounting; In case of accommodation travel companies  – especially those in the middle of the market will be having dynamic  pricing almost daily for the month or possibly two months ahead to fill the profit gaps.

Seasonal Pricing

This is a usual practice in luxury travel business to have a mix of pricing throughout the year to envelop low, high, and shoulder seasons. This is to cater to businesses for differing levels of demand based on particular time of year.  Normally the price cycle will repeat every year and may also apply for school holiday dates and for certain local events where the dates might vary each year.

Commissions

Most of the bookings will come via third party who will charge you a commission. Many Luxury tourism operators are tempted to include the value of the commission on to the pricing itself for these providers but instead this should actually be considered in the setting of the rack rates itself– if you have variable pricing across various distribution channels it just confuses both travelers and can even jeopardize the relationships. Therefore keep it as simple as possible.

 

Pricing Strategy For Luxury Tourism Operation