Abstract
While conventional pricing strategy involves sellers to decide price of a tourism product, tourism companies carry the risk of capacity underutilization in many occasions when fixed costs are already incurred. Pay What You Think Fair (PWYTF) pricing mechanism motivates tourists to pay a fair price for unutilized capacity, thereby, increasing sales and profit for marketers. This study shows that PWYTF pricing mechanism with a concrete reference price of customer can generate significantly higher revenue and profit for a long period of time. We have conducted three experiments to show that PWYTF pricing strategy is a profitable and sustainable pricing solution for tourism companies to increase revenue during off-season as well as underutilization of hired capacity. This study opens a new avenue in pricing methods used in tourism industry and contributes in significant way both in academic and practice.
Highlights
While conventional pricing strategy involves sellers to decide price of a tourism product, tourism companies carry the risk of capacity underutilization in many occasions when fixed costs are already incurred
This shows that tourists would be motivated to pay significantly higher price for the service they buy under Pay What You Think Fair (PWYTF) pricing context
This shows that tourists would not pay enough to cover the cost of the item under sale through PWYTF pricing mechanism when they don’t have a confirmed reference price through which they can derive the cost of the product
Summary
Pricing is known to be a very important task for tourism companies [1]. Since pricing is the only source of income for the services tourism companies deliver, the obligation for working management is to set the price such a way that it recovers cost and provides sufficient revenue and profit. It is extremely difficult to find a mechanism that will give optimum revenue to these companies [2] [3]. A price which is set high has the risk of customer defection, while a lower price reduces revenue.
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