Pricing for possibility, potential, position and progress

Mind your Ps and Qs (27)

Remember hostels, Europe on $5/day?! Should we add two zeros to that figure these days, particularly when staying at a decent hotel or resort? There can be no doubt, worldwide global inflation has catapulted the affordability of everything into the public consciousness. Housing, food, autos, clothing, consumer goods and services, travel and tourism have or are reaching their price tipping points.

Around the world, many people, even in the middle classes, are struggling to make ends meet, changing their purchasing behaviors, spending more to buy less, travelling shorter distances, cutting back on length of stay, having to contend with junk fees and escalating demand for higher tips.

On top of that, locals in many jurisdictions are blaming tourism for contributing to the affordability crises, with tourism development especially in high demand areas or regions fostering gentrification and exacerbating not just the costs of living (beyond what`s considered normal or reasonable) but inequalities and social cohesion, as exemplified in cities like Barcelona.

Sure, business models and strategies are changing. The remedies associated with seeking more affluent, high value high quality (business, conference, luxury) tourism may be allaying some concerns, but will they alleviate a community`s overall worries about affordability and social cohesion as destinations become more exclusive and less inclusive? Moreover, as appeals for recreational, educational, family-oriented tourism getaway markets get neglected or worse, slide into decline, are we about to witness a repudiation of social tourism and a social vision for tourism (the Montreal Declaration)?

While pricing decisions are said to be in the hands of individual enterprises, each with their own approach, strategies, and methodologies, it can be argued that “price is based on the purchaser’s worldview and situation, not the producer’s.” After all, pricing decisions always reflect a willingness to pay (sometimes determined by per diems) and the perceived value customers earn from any purchase.

Companies and communities-as-destinations can influence pricing decisions by choosing more appropriate generic strategies – cost leadership. differentiation or focus. In doing so, though, they will have to consider a range of external factors, particularly in relation to tariffs and trade controls that are reshaping the global business landscape, disrupting supply chains, and introducing new complexities to cost structures, demand patterns, and competitive positioning, including the costs associated with operating a business within specific cities or communities. Costs which vary based on criteria such as business license fees, utility taxes, sales taxes, minimum wages, average commercial rents, crime indexes, and housing affordability indexes.

A lot also depends on a community’s existing image and reputation, popularity, response to overtourism (e.g. visitor fees, congestion pricing, application of queuing theory) and need for accessibility, infrastructure investments, impacts on complementary businesses, overall cost of living and quality-of-life, the characteristics of and use of power in the tourism cluster, and level of support and incentives provided by local, regional and national governments.

Other external factors that impact on pricing can be extensive: Trends, macroeconomic risk, the peaks and valleys of demand from different market segments; seasonality; marketing and financial support; business cycles; shifts in customer sentiment; “vibcession” (link between economics and emotions); what visitors want; their expectations and elasticities toward prices when compared to reference prices; per diem allowances (often determined by taxation authorities); travel reward programs; nature of the competition and response to competitive strategies and price; labor shortages; utilization of technologies and AI; costs and control passed on through intermediaries and throughout supply chains, including the networking power of industries, governments, unions, industry associations and NGOs to influence or dictate policies, costs, wages, and prices.

Obviously, virtually everything that goes on within organizations (summarized in the 7 S model) affects pricing. The internal factors affecting pricing include consideration of all fixed and variable costs – labor, financing (e.g. interest rates) operations, marketing – that organizations have to cover and contend with (including the ability to overcome cost challenges) .

Attention must also be paid to the required nature, characteristics, timing and dynamics of revenue streams; risk management; requirements of loyalty programs; how different market segments are prioritized, and value is delivered; the approaches and strategies used to achieve capacity utilization (not overcapacity); focus on the right value drivers; differentiation of offerings that do not suffer from uniqueness bias; benchmarking against competitors (especially for commodity providers); and, how best to earn and stabilize profits in order to reinvest, grow, innovate and excel.

Pricing and revenue management in volatile and unstable environments are complex to say the least. Evidence of egregious pricing mistakes cannot be tolerated, leading to calls for price transparency and a renaissance in pricing that might be in the minds of industry leaders, but has yet to be resolved for a variety of reasons:

· A lack of sophistication in creating and designing distinctive and recognizable products/services/ experiences and how they can be bundled, even at destination levels and among providers.

· Generic views of elasticity in pricing, particularly among different markets and visitors.

· Too much focus on the prices set by competitors.

· Recovery for all sorts of costs, greed, and inadequate revenue management capabilities.

· Prioritizing volume over price, and quantity over quality.

· Lack of knowledge about the psychology of pricing and its ability to build relationships.

The need for more comprehensive approaches to determining and setting prices is essential as organizations and destinations search for possibility, potential, position and progress. New levels of possibility and potential have to be determined through carefully conceived destination assessments and insights; clarity as to the purpose of tourism, analysis of current events, and the ability to implement organizational and destination strategies.

Positioning, for example, needs to be determined not just through strategies, communications, design and quality, but also through pricing as expressed through well-conceived value-based pricing that takes into consideration all aspects of value conceived as being functional and emotional as well as having life-affirming and social impact.

In turn, progress will be determined by how effectively pricing conveys and signals a destination`s quality offerings; its principles that might, for example, reveal a destination`s commitment to sustainability; a willingness to address tourism`s climate costs; and desires of organizations and destinations to ensure visitors derive value, while achieving capacity utilization (quantity), decent profitability and ROIs.

By so doing, visitor-serving enterprises and communities-as-destinations will recognize that pricing can be approached and manifest in more empirically sound, strategic and pragmatic ways.

All told, a lesson for decision-makers as they strive to be altruistic rather than selfish, rational rather than biased, social and strategic as they interact with each other not just obtuse markets as they seek bronze, silver and golden opportunities.

In the meantime, sister, can you loan me a dime!