Optimization of the pricing strategy for a company from the tourism sector

Effective pricing strategy translates directly into the maximization of revenues coming from the products and services sales. Price research helps to find the optimal price level and use the full revenue potential.

How to adjust the prices to the current market situation?

One of our clients operating on the tourist market needed support in the area of optimization of the pricing strategy for its strategic product for the coming years. The client wanted to receive answers from the price research for the following questions:

  • Are current prices well-adjusted to the market and fully exploiting the revenue potential?
  • What price range is acceptable for the clients?
  • How will consumers react to price changes? Will the price increase cause a drop in the number of customers?
  • Within what limits can the price be diversified for different customer segments?
  • What sales results can be expected for certain prices?

The researchers from CIVITTA conducted a consumer survey in order to answer the questions. The primary purpose of the study was to identify the price sensitivity of customers and determine the optimal price for the product.

Building a pricing strategy based on the simultaneous use of complementary price research methods

There are four most often used by market researchers methods of determining the optimal product price:

  • PSM (Price Sensitivity Measurement) – used primarily to determine the price range acceptable for a given product.
  • DPA (Direct Price Acceptance) – allows testing predefined prices and determine the likelihood of buying a product at these price levels.
  • Demand Two – similar to DPA; used to test a previously defined price, but its primary goal is to estimate the volume of purchases (understood as the sum of trial and repeated purchases).
  • BPTO (Brand Price Trade-Off) – a method of testing the price elasticity of demand; the price and the brand are tested in relation to the competing brands.

The methods mentioned above can be applied separately, but their combination within one research study brings the best effects due to the possibility of mutual verification of the results. That is why we have proposed this solution to our client.

The project included direct research with Polish and foreign tourists representing the target group of the client (both potential and existing clients). In this aspect of the study, we used two methods of price research:

  • PSM – pricing sensitivity testing,
  • direct price acceptance testing using Juster's 11-point scale that specifies the probability of purchase.

In addition, the results of the study were supplemented with an analysis of prices in competitive (domestic and foreign) companies and an analysis of external factors affecting prices on the tourist market.

Support for implementation of the pricing strategy by providing useful data and tools

The final result of the project was a report that summarised the most important conclusions of the price sensitivity analysis. The report also contained a set of recommendations regarding changes in the current price list. The proposed next steps were based on the results of the research and took into account the specifics of the tourism industry and macroeconomic changes affecting the market.

Besides that, the client received an intuitive working file – a tool that at the stage of work on the final price list will allow the team implementing the new pricing strategy to easily test how price changes can affect the number of customers and sales revenues.

Decisions regarding the pricing strategy have a key and direct impact on the company's market success. Too high and too low prices can weaken its competitive position. Too high price can scare away some customers, and too low price exposes the company to the risk of losing a possible profit and the outflow of customers who directly equate price with quality. Price perception in the eyes of consumers should be one of the critical factors that the company takes into account when implementing or optimizing the pricing strategy. That is why price studies are excellent support in this area of running a successful business.