South African tourism businesses are urged to remain cautious when pricing or planning to increase rates as this can impact the performance and future growth of the industry.
Charnel Kara, Tourism Specialist at FNB Business says when reviewing pricing, businesses should consider various macro-economic factors and the overall impact on the entire tourism value chain. Inadequate pricing can lead to unsustainable revenue growth and further disrupt the sector by placing pressure on other businesses to adopt similar pricing strategies.
Kara unpacks key factors that businesses should consider when reviewing pricing:
- Cost and affordability – the majority of travellers still consider cost and affordability when choosing a destination, products or services. From a domestic tourism perspective, a challenging economic climate means less disposable income, resulting in travellers becoming price sensitive when travelling or purchasing a product or service. On the international side, while South Africa is seen as a long-haul destination, a weaker Rand makes the country extremely attractive as it becomes a value for money destination.
- Seasonality – businesses can look at innovate ways to price according to their respective business cycles. During a low demand period, where the business does not typically receive many foreign tourists, offer a discounted rate to local travellers. Offering a half board package to local travellers as opposed to a full board package makes it more affordable to local travellers.
- Competitive pricing – to benefit from the weak Rand, businesses should price attractively. As an example, hotels should consider selling block or group bookings at a slightly lower rate than singular bookings, or perhaps charging less for longer stays. This is one way to ensure ‘bums in beds’ where there is potential to spend more on other offerings. On the other hand, it is also important that pricing is kept in line with competitors. However, should there be an increase, the business should be able to justify the higher price.
- Operating costs – realistic pricing does not necessarily mean undercharging. Businesses should consider fixed and variable costs. Food costs, fuel and electricity price hikes, as well as property rates continue to be absorbed by business owners and are often ahead of inflation, resulting in a negative effect on earnings.
- Distribution costs – review the channels being used to promote your offering to the market and the costs thereof – as this can impact pricing.
“Lastly, in tourism the relationship between price and quality is as important as price and service. Customers understand there will be a difference in premium when choosing a specific product or service. For example, customers know the rate charged at a selected service hotel would be less than that charged at a full-service hotel. Irrespective of price, while some customers are willing to pay a higher rate for a premium product, all customers are non-negotiable when it comes to the service they receive,” concludes Kara.
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