Price is a very powerful signal. It goes much beyond providing information about the monetary value of a service or experience. It influences perceptions, decisions and actions in ways that remain underutilised in the travel sector. This article offers some insights and helpful hints on pricing tourism experiences.
This article is part of a series, co-written by Simon Jones (NatureScapes) and Milena Nikolova (BehaviorSMART), focused on understanding human behavior and how it impacts tourism in natural spaces.
Going Back to Nature
Wendy and Jason are a couple passionate about the outdoors and nature. Several years ago they left life in the city and purchased a small property with six cabins located in a remote natural area near a stunning lake and surrounded by forests. They refurbished the property and transformed it into a perfect nature getaway for people looking to take a break from city life and rejuvenate by reconnecting with nature.
Many of their clients are repeat customers who originally came for a long weekend but later returned for longer stays. Wendy and Jason saw an opportunity with the pandemic and launched extended packages - “A Home Office in Nature” - for professionals who want to combine the opportunity to work remotely with more outdoors time.
As part of their business development efforts Wendy and Jason proactively reach out to different entrepreneurs in the area to establish partnerships and explore opportunities for collaborative offerings. Today they are meeting Shannon - owner of a dairy farm and a small cheese shop located a two-hour bike ride from the cabins. The three are finalizing their plans to launch a set of joint offerings - a cheese making demonstration and cheese tasting experience offered at Shannon’s farm. Wendy and Jason want to package that with one of the several new bike routes they developed after investing in a set of new bikes they rent out to their guests. Here is the conversation:
What goes into a price?
‘Thank you guys for working with me on this.’ said Shannon welcoming her business partners into her cheese shop. ‘Offering traveler experiences is new for my business so your help has been great. Now, one last thing is pricing. This is something for which I really rely on your help.’
‘No worries at all. Wendy is a pricing master after she took that course on psychology of pricing last year.’ said Jason.
‘Yes, I thought we were savvy with our pricing but this training gave me a much better understanding of how many more considerations there are when we decide on prices. Okay, so let’s get started on this.’ smiled Wendy. ‘We designed a biking route map that will guide guests from the cabins to here and back. We were able to put it together as a loop so they can start at the cabins some time in the morning and be here for the cheese making demonstration and cheese tasting. You will have their picnic baskets ready so they can grab them and bike for 10 minutes to the nearby view point where they can have lunch and enjoy the scenery before they jump on the bikes to return to the cabins.
About the price -- we propose to have one package price that includes the bikes for the day, the cheese making demonstration, cheese tasting and the picnic basket, which would be $110 per person or $200 for a couple. How does that sound?’
The importance of pricing with 9’s or 0’s
‘Wendy, I have a few questions here. Shall we make the couples package $199? This usually makes it more appealing and gives people the sense that it is cost-effective?’ asked Shannon.
‘Not really, Shannon. We are already incentivising people to go as a couple with the saving we propose for the couples’ price but we also do not want clients to think this is a cheap experience. You offer very good quality cheese, your demonstration is a very exciting experience and the bikes we offer are high quality so we want people to expect quality and not buy because this is cheap. When a price ends with 9 or 99 it actually signals that this is an offering targeting the more budget sensitive clientele, competing on price more than value. This is why most of our prices are rounded as we invested in the cabins to make them high-quality and attractive to people who are looking for a quality experience in nature rather than a cheap getaway.’ explained Wendy.
Shannon was impressed, ‘I did not realise that. I know many prices in the supermarket end with a 9 but I never thought about how my prices could impact people’s perception. I will make sure to review all my prices at the shop as I know I have some that end in a 9.’
Packaged vs. Itemized Pricing
‘Okay, so then another question: do you think we should make this as one package price or maybe split it into different items that people can pick and choose to add into a package?’
Wendy was confident: ‘No. I think that it is important that we price this together and this is best for us, for the destination and for customers.’
‘How so? Don’t people like to have the freedom to choose what they will pay for? I thought that we will have the bike ride and they can come and decide whether they want to pay for the cheese demonstration or for the lunch, or for both?’ Shannon was surprised.
‘Yes, perhaps in the city they would.’ Wendy explained. ‘Here we have a different situation, which makes the integrated price the best option. First, our customers come to relax and enjoy some down time away from the stresses of everyday city life where they are responsible for a thousand decisions a day at work and at home. Guests enjoy it when you give them a chance to enjoy without having to look at options and pick, and choose all the time…. They feel we are the insiders here and we have curated for them the best things to do. So, packaging things into one single price enables them to pay, forget and enjoy; it makes it easy for them.
Second, the reality is that we have put this together to ensure that we maximize the value that our area gets from guests that are already here. The packaging of the bike ride with the cheese-making demonstration nudges our guests to go and be active for a few hours and actually gives them a destination for their bike ride. It is an interesting activity and very different from what they get to do when they are in many other outdoor destinations.
The next thing is that we know that they will want to have lunch after they ride for two hours and see your cheese demonstration. We can either come up with a lunch option that we package in or we leave it up to them to go and find something. They could technically go to the local grocery store close to your shop but then they are likely to buy things, most of which will not be local. The idea to have you package a picnic lunch for them is much better as it links nicely with the cheese-demonstration experience and it ensures that the lunch our guests will have will be 100% locally sourced.’
Pricing for Impact
Shannon realised, ‘So, in a sense, with this pricing tactic we ensure that our joint offering is 100% locally sourced -- the bikes are rented from you, they come for an experience with me where they observe local cheese making and then for lunch they have food, which is produced by the farm. I really feel good about this!’
‘We have been taking that approach with much of the product development work we have been doing in the last couple of years,’ Jason jumped in. ‘The interesting thing is that we have been very transparent with our guests that these packages are designed to be exciting but also to maximise the value that stays in our area, and they like it even more. When they come back from their experiences they often thank us for the great time they had; we actually thank them back and tell them that while they were having fun they have made a big difference for the livelihoods of those living in the area. They love it!’
High Price-Low Price Signals
Shanon was fascinated, ‘I never thought you can influence so much with pricing. I always looked at my prices as a way of ensuring that I maintain a reasonable balance between costs and revenues, and that I am profitable.’
Wendy continued, ‘Price is so much more than that. Think about it - as consumers, we often use price as the main signal for what to expect from a product or service. A higher price automatically means we expect higher quality; a lower price can make us suspicious about what we are getting. This is one of the most strategic mistakes I see people in our business make -- price products, especially local products, too low and it triggers the perception that they are lower quality. Let’s take your cheese as an example. We offer a cheese and fruit platter that our guests often buy with a bottle of good wine to enjoy on their terrace at sunset. Ever since we met you, we stopped buying other cheese and shop only from you. If we use a typical pricing tactic and simply apply our standard margin, we would end up with a price that is half of what we had on the menu for the same platter with imported cheese. Our guests enjoy good food and wine but they are likely unfamiliar with local cheese production and with your dairy farm. We know your cheese is high quality but they have no way of knowing so if we price it too low, they might end up suspecting that the quality is not what they would like to buy. Therefore we describe the platter as a hand-selected collection of exquisite local cheese produced by a local third-generation cheese maker and priced it just below the imported version we had. I have to tell you that it is one of the most popular items on our menu and guests often ask us about buying the cheese. This is how we came up with the idea for the joint experience.’
Providing a Point of Reference for Price
Jason jumped in, ‘This really worked for us, but we did not think that way about our prices until Wendy completed this program I mentioned. We never thought about these important signals that our prices send, but they matter quite a bit for our business where one travel experience is so hard to compare to another. Price is often the only signal for consumers when they are trying to evaluate a product or service they are buying for the first time. Without prior experience with the specific package, they look to compare it to something they are already familiar with. In the leisure travel business trying new experiences is at the core of the business so we must make it easy for clients to judge and compare new offerings.
If we do not provide them with the point of comparison that makes sense, they might end up with a comparison that is less relevant. For example, can our joint bike and local cheese activity be easily compared to a photo hike? No! But it is possible that our guests were most recently on a photo hike, which cost $69 per person and if they decide to use that as a reference point, they may feel our experience is overpriced and they should go for something more “reasonable.” But if we provide a different point of reference with the price, they will be able to appreciate the value that they are getting for the price.
For example, our Discover the Herbs at Wild program is an extraordinary experience that involves spending time out in nature with a highly specialised guide who helps you spot herbs and learn their healing benefits. Guests have a tremendous time, they learn how to recognise and pick herbs, how to dry them and use them at home. Many describe this program as exceptional and the highlight of their trip. At the same time, we did have a hard time selling it at first as many guests compared the price tag to the average guided hike and found it unreasonable. This is when Wendy changed the way we present it; if you look at our board with experiences now you will note that along with the price we state “at the price of an average lunch at a downtown restaurant, you will engage in a discovery experience where you will learn to use natural herbs to support your wellbeing’. After we added this, it served as a point of reference and our guests immediately recognised that they are not only going to have a nice time out in nature but they are going to walk away with some new knowledge that will add value to their quality of life. That is certainly more valuable than an average lunch.
Shannon was amazed, ‘You guys are revealing a whole new world of pricing tactics for me. I am amazed at how many effects one can trigger with mindful consideration of pricing.’
‘And this is not everything…. There is so much more.’ added Wendy.
Price Is Much More Than Profit
What Shannon learned in the example above is that pricing the value of a travel experience is so much more than covering your costs and margin. Unlike a commodity like milk or sugar, there is a more intangible element to pricing a travel experience. To demonstrate quality over lowest price a pricing ‘0’ is the way to go; to help visitors minimize their decision making (and make buying local the default) a packaged price is the best option. We also learned that being able to provide relevant points of comparison for pricing helps to convey the value that the travel experience offers to visitors.
These examples and other techniques are specific to each location and applied after analysis that determines their viability, but can make a huge difference to profitability as well as value for visitors to a place.
Additional examples of behavioral tactics in the travel sector can be found in other articles in this series.
Look out for our next article ‘Market Mentality,’ coming soon.
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