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Pricing is a powerful influencer in tourism, not just from an affordability perspective, but also when considering value for money, venue/destination attractiveness, parity along the service provider value chain, and working competitively and sustainable within the fluid market dynamics.
“First arrivals for 2018 are down; nobody’s book is looking particularly bullish for the rest of this year,” says Monika Ieul, CEO of Private Safaris Southern Africa, who was moderating a panel discussion on Pricing: how do we move away from the boom-bust model, at the annual 2018 Satsa conference in Port Elizabeth.
And the tourism industry is turning the spotlight on to pricing as the cause – and the solution.
Discounting and offers need to be thought through carefully, to ensure that products are priced correctly for the cycle the region is in. “We’re of the opinion that there are typically four to five-year cycles between southern and East Africa,” said Ryan Powell, sales and operations director for &Beyond. “So there’d be a boom now in East Africa for a four to five-year period, pricing goes up, availability is challenging, then it swings back down toward southern Africa. Southern Africa reverts to higher levels of discounting during the boom in East Africa, business will be flat or down depending on segments or markets served, then reverses out after a period of time.”
Powell continues: “If there’s high demand – so not enough beds – then pricing is a natural mechanism to stem demand, particularly where seasons are short with a limited window to negate the deeper discounting across the channels served. To try and limit the need to severely discount, or discount with short lead times, one needs a good 12 to 18-month lens to try and see the potential downturn. If you didn’t have this in place, there is the real chance you would’ve priced yourself out and potentially already discounting.”
A need for more transparency and greater synchronicity throughout the value chain was also noted by the panellists, with a pricing strategy that priced to the end customer as opposed to each link pricing to its highest profitability. This, in the end, adds up to a massive fee for the customer – a significant deterrent to travelling to a particular destination, which could end up with the whole value chain losing out on business.
Sisa Ntshona, CEO of SA Tourism, said, from an umbrella perspective, the challenge at SAT was that it was marketing a product that it had no control over in terms of pricing. “Along the value chain everyone is trying to make money, maximise profit. When you add all these things up, we lose our competitiveness. Part of the difficulty is that it takes a small percentage of [service providers] to be perceived as playing a certain way, then this is tagged on to the whole industry. We need to ask ourselves what is being done in terms of synchronising the perception of us as an industry.”
This is where relationships within the value chain gain powerful traction, with a nod in the direction of integrity and, once again, transparency. “Because we’re in an industry of relationships, trust is key, along with how you operate,” said Powell. “As much as you compete with your competitors, you want their support. Every level of the value chain is important; we protect each other. We do encourage competition but we don’t want a retailer, for example, to have access to pricing that our service providers have.”
In fact, relationships are considered the ‘currency’ of tourism, according to Lindy Rousseau, Sales and Marketing Director of Singita.
Another difficulty faced by the industry, said Neil Bald, CEO of aha Hotels and Lodges, was that “we spend a lot of time trying to get pricing right”. “We price for a year to 18 months out.” This can lead to a service provider having to hold stock. Or a cancellation over that 18-month period can have a product come back into stock. “That’s when panic sets in, and that’s when rates get dropped. This often has an impact on rate pricing, and we go into short lead-time markets.”
Martin Wiest, CEO of Tourvest Destination Marketing, said this was exactly the problem in the industry. “From a DMC perspective, we can’t understand the logic of products. As a departure point, we need to clarify that there are two elements: a customer that needs a bed, and the bed. In between these beginning and end points, the customer has choice of channels, and his decision will let him pay a particular price. We all know the commercials of a distribution channel – the strategy should be that one sticks with these commercials through thick and thin.”
Craig van Rooyen, Director of Tour d’Afrique, said: “It all comes back to deciding what profitability you want to make as a business, the cycles of currency, justifying to customers why you are increasing rates and, finally, having transparency and parity when distributing the same product to tour operators around the world.”
“Look long term – there are indications is that tourism will grow more significantly. Most affluent individuals rate travel as a priority. Over-tourism across the globe is becoming a problem, and Africa is perfectly placed to solve that problem. Don’t think just about price, think about value add,” concluded Rousseau.
Source: tourismupdate.co.za
