Pricing can make or break a sale. It can also provide greater profits for reinvestment, allow for more staff hires and training, or gain income to expand your business, amongst a wealth of other things. With such far-reaching impacts, how do you decide the amount you’re charging your customers? Where do you start? When should you change them? To help us answer these questions, we’ve turned to four tour and activity operators with beautiful websites (get in touch(opens in a new tab) if you want one for yourself) who have kindly shared their own practices and experiences.
Who we asked
- Greg from Big Bend Far Flung(opens in a new tab), who provide river, jeep, and all-terrain vehicle (ATV) tours, as well as lodging and rentals in Big Bend National Park in Texas, USA.
- Alun from Alun Evans Personal Tour Guiding Munich(opens in a new tab), who provides historical walking tours in Munich and the Dachau Concentration Camp Memorial in Germany.
- Ruth from Secret Paradise(opens in a new tab), who provide guided day, multi-day, and personalised tours of the Maldives.
- Danny from Collins Day Tours(opens in a new tab), who provide guided day tours from Dublin throughout Ireland.
Setting the price
If you’re starting out or just thinking about adding a new experience to your range, there are a lot of factors that you should consider when choosing the price. As is to be expected, all of our interviewees look firstly to the running costs. This can include staff, operational costs, travel expenses, and advertising.
The next step that everyone takes is to look into competitor pricing as a way of understanding the market but not necessarily to compete in price. Ruth, Greg, and Alun all noted that they offer something extra than their competitors, which can justify charging more. For example, Ruth noted that all of her local guides have First Emergency Response and Lifeguard certification. Being able to provide this means that she charges more than other local companies. Similarly, Alun’s experience, research, ratings, small group sizes, and target demographic allows him to charge higher than his competitors. On the other hand, Danny looks more to the market to understand the number of similar products and businesses in his marketplace. For Ruth in the Maldives, this additionally requires taking local taxes into account.
The industry attitude towards online travel agencies (OTAs), such as TripAdvisor or Viator, varies wildly. Danny from Collins Day Tours refers to OTA commission rates when determining the pricing on his tours. In opposition, Greg from Far Flung doesn’t use OTAs because of their contribution to an overall erosion in margins. Both Ruth from Secret Paradise and Alun from Evansguide use OTAs and keep their pricing the same across all platforms. Ruth has established margins to allow her to cover pricing across all re-sellers. Alun also takes a loss from OTA commissions but views their use as an advertising expense.
It is crucial to note that your market, location, and service will alter your need to use OTAs or not. As such a key part of the travel industry, however, it is essential that you take them into proper consideration when setting your pricing strategy. If you’re looking for more information on OTAs check out Tourism Tiger’s article on OTAs and maintaining direct bookings(opens in a new tab).
Changing the price
Both Ruth and Greg will change pricing as a result of increased operational costs or an erosion of gross margins (this is the percentage of the revenue minus the running costs). Seasonality is also a factor that Danny and Ruth consider as a way of boosting sales during off-peak times. Alternatively, Alun maintains his pricing throughout the seasons. If you are offering a walking tour and don’t have a lot of operational expenses like Alun, this might be relevant for you.
In terms of pricing review, each of our operators takes a different approach. Alun and Ruth perform an annual review. Ruth says that for her, “it allows our resellers and partners to upload information only once a year.” So if you are a business that uses a variety of resellers or partners, having an established time of year when you’re considering pricing gives others the opportunity to plan accordingly.
Greg changes his prices every three years and says, “they probably should every other year but the process takes time.” If price reviews are a tedious task for you as well, we would definitely suggest having a consistent schedule. For Danny, this is every five years and he does so in consideration of competition in the marketplace. If you are operating in a highly competitive market, like Danny, then you should have a strategy of either stable (fixed) or flexible pricing. Therefore, setting not only the right price but also establishing the right strategy from the beginning is that much more important.
So how much might your prices have changed since you started out? Ruth’s pricing has increased from around 20-30% for various products since 2012, reflecting not only increases in supplies and local tax but the increased value of the experience they are providing. Alun’s experience over the past five years has seen him raise his prices only twice. He attributes this to his being more familiar with pricing and making the necessary small adjustments. In the previous 11 years, Danny has increased his pricing by around 17%. The takeaway? Consider your product or service, how much it costs you to run, what your competitors are charging, how many competitors there are in your market, and also, your perceived value of the experience you’re providing. Then, allow for the possibility that these factors may change over the years. At the end of the day it’s your business, so how you perceive and showcase your product(opens in a new tab) is essential.
The age-old question: to offer promotions or not. While we advised about stability just a couple of paragraphs ago, what’s a rule if it doesn’t have an exception? Across the board, there was an agreement that bundle promotions are generally a good idea. For Greg, it means offering discounts on activities when people book accommodation. Bundle package discounts are also used by Alun and Ruth as a means of driving an increase in sales but also building revenue in quieter seasons. Danny looks to the promotions being offered by competitors and will often try to provide a better deal. Alun notes, “promotions depend on your demographic, particularly the ages of your guests.” The benefits of promotions are that you can use them flexibly. Don’t be afraid to test a promotion out and gauge the response. If you’re looking to promotions regularly, however, this may be an indication that your base pricing is off. In this case, it might be worth going back to step one.
Let’s talk about the elephant in the room. In times of crisis or downturns, like the one that the industry is currently experiencing, there are some additional things to consider for pricing. Tourpreneur(opens in a new tab) has recently released a podcast with Arival(opens in a new tab) outlining some tips on pricing during economic downturns. His guest, Luka Hempel suggests that if we look at the global financial crisis in 2007, we should expect business to only reach 85% capacity for the next three to five years. With this in mind, Luka provided a variety of great tips to increase revenue.
We would recommend listening to the podcast but here are a few notable tips we took away. Look to companies with high fixed costs, such as airlines or hotels, to see if they are doing anything that you can adapt to your own business. Additionally, he suggested upselling on existing products, like providing VIP options, private transportation, or different classed tickets. Having a product that is more expensive than your core product will also make buyers believe that they are getting a better deal. Finally, offer early-bird discounts. We’ve discussed rewarding early purchases(opens in a new tab) before and it is a great way to incentivise and give urgency to bookings. Luka notes that if you are providing discounts or promotions, be aware that this will direct the customer’s focus to the price, away from the product’s value. So, “discount with care!”
This is by no means an exhaustive guide on how to set your pricing. If you take only one thing away from this article it should be that there is no right or wrong way to set and change the prices of your tours. Your product, market, location, overhead, and perceived value should all be factors you have in the back of your mind when thinking about or reviewing the cost you charge. Hopefully, this article sparks some ideas for you the time you’re next setting or changing your pricing.
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