by Stephen Ekstrom | President & Founder, Fire Starter Brands LLC
If you're working with tour operators, you've probably come across the phrase "tiered pricing" a few times. In this article, we'll take a look at what tiered pricing means to tour operators and some simple tips for creating the perfect pricing structure for your product.
What is tiered pricing?
Tiered pricing exists in most consumer marketplaces. The more you buy, the better the price. Buy one gadget & you pay full retail price; buy a whole bunch of gadgets and you can negotiate for a lower price. Tiered pricing may also be considered a part of a yield management strategy whereby an organization offers better rates to those who can bring more business during less busy periods.
See also: Types of price discrimination
Most tour operators build their profit on the margin that exists between the retail price and the price they pay. They package a variety of travel components - transportation, accommodation, meals & activities - to create a perceived value for the consumer and profit margin for themselves.
How do I find the right price for the tour operator?
- Calculate your full retail rate. This should include all taxes, gratuities, service charges and standard upgrades. This is your "rack rate."
- Would you offer a discount to a customer who buys 10 or 20 items. Do you offer a group rate?
- Learn how the tour operator will be selling your product. Will they sell directly to consumers, are they selling wholesale to other operators, etc.
- Take a look at Fire Starter Brands' industry sales flow chart for suggested pricing strategies based on operator type.