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Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different market segments. Price discrimination is distinguished from product differentiation by the more substantial difference in production cost for the differently priced products involved in the latter strategy. Price differentiation essentially relies on the variation in the customers' willingness to pay and in the elasticity of their demand. For price discrimination to succeed, a firm must have market power, such as a dominant market share, product uniqueness, sole pricing power, etc. All prices under price discrimination are higher than the equilibrium price in a perfectly competitive market. However, some prices under price discrimination may be lower than the price charged by a single-price monopolist. Price discrimination is utilised by the monopolist to recapture some deadweight loss. This Pricing strategy enables firms to capture additional consumer surplus and maximize their profits while benefiting some consumers at lower prices. Price discrimination can take many forms and is prevalent in many industries, from education and telecommunications to healthcare.
Name your own price (NYOP) is a pricing strategy under which buyers make a suggestion for a product’s price and the transaction occurs only if a seller accepts this quoted price. What happens is that the seller waits for a potential buyer's offer and can then either accept or reject that 'named price' that the user had offered. As the Internet is continuously being developed and online marketplaces are becoming increasingly more popular, consumers have more choices in terms of product pricing. Popularized by the reverse auction pioneer, Priceline.com, such pricing strategy asks consumers to 'name their own price' for various products and services like air tickets, hotels, rental cars, etc. The first bid a consumer places and the subsequent bid increments express the consumer's willingness or unwillingness to haggle. "The economic argument is that the number of bids a consumer submits to win a product in a NYOP auction is determined by the bidder’s intention to trade off higher expected savings from haggling against the associated frictional costs". NYOP retailers do not post a price for their products, and the final price of the transaction is only determined via a "reverse auction process", and these are key features that distinguish hotels and travel intermediaries from NYOP retailers. Similarly, LetYouKnow, Inc. pioneered the application of its own patented matching method within confines of the reverse auction process, whereby consumers name their own price for new vehicles.
The list price, also known as the manufacturer's suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP) of a product is the price at which its manufacturer notionally recommends that a retailer sell the product.
A low-cost carrier or low-cost airline is an airline that is operated with an especially high emphasis on minimizing operating costs and without some of the traditional services and amenities provided in the fare, resulting in lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge extra fees – such as for carry-on baggage. As of April 2020, the world's largest low-cost carrier is Southwest Airlines, which operates primarily in the United States, as well as in some surrounding areas.
Yield management is a variable pricing strategy, based on understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, time-limited resource. As a specific, inventory-focused branch of revenue management, yield management involves strategic control of inventory to sell the right product to the right customer at the right time for the right price. This process can result in price discrimination, in which customers consuming identical goods or services are charged different prices. Yield management is a large revenue generator for several major industries; Robert Crandall, former Chairman and CEO of American Airlines, gave yield management its name and has called it "the single most important technical development in transportation management since we entered deregulation."
Priceline.com is an online travel agency for finding discount rates for travel-related purchases such as airline tickets and hotel stays. The company facilitates the provision of travel services from its suppliers to its clients. Priceline.com is headquartered in Norwalk, Connecticut, United States and is wholly owned by Booking Holdings, which also owns Kayak.com, Booking.com and other sites. The company was founded in 1997. It operates in more than 200 countries and territories around the world and has partnerships with over 400 airlines and 300,000 hotels. Users can search for travel deals and discounts on the website, and in the past also offered the "Name Your Own Price" feature to bid on hotel rooms and flights.
A package tour, package vacation, or package holiday comprises transport and accommodation advertised and sold together by a vendor known as a tour operator. Other services may be provided such as a rental car, activities or outings during the holiday. Transport can be via automobile, buses, charter airline, and may also include travel between areas as part of the holiday. Package holidays are a form of product bundling.
A round-the-world ticket is a product that enables travellers to fly around the world for a relatively low price. RTW tickets in the past were generally offered through marketing agreements between airlines on several continents. Now, they are almost universally offered by airline alliances such as SkyTeam, Star Alliance and Oneworld, or by specialist travel agencies that will spend time customizing a trip for the consumer. Prices vary but are generally in the range of US$2,500–6,000 for an economy class ticket and US$5,000–14,000 for business class. Sometimes, depending on airline and stops, it can be as low as £1,171. An alternative for a round-the-world ticket is a continent pass.
Hotwire is a travel website that offers airline tickets, hotel rooms, rental cars, and vacation packages. It operates by selling off unsold travel inventory at discounted prices. The company is headquartered in San Francisco, CA, Hotwire, Inc. is an operating company of the Expedia Group, which also operates the website ClassicVacations, Expedia, Hotels.com, Orbitz, Travelocity and Egencia.
A global distribution system (GDS) is a computerised network system owned or operated by a company that enables transactions between travel industry service providers, mainly airlines, hotels, car rental companies, and travel agencies. The GDS mainly uses real-time inventory from the service providers. Travel agencies traditionally relied on GDS for services, products and rates in order to provide travel-related services to the end consumers. Thus, a GDS can link services, rates and bookings consolidating products and services across all three travel sectors: i.e., airline reservations, hotel reservations, car rentals.
Overselling or overbooking is sale of a volatile good or service in excess of actual supply. Overselling is a common practice in the travel and hospitality sectors, in which it is expected that some people will cancel. The practice occurs as an intentional business strategy in which sellers expect that some buyers will not consume all of the resources they are entitled to, or that some buyers will cancel. The practice of overselling aims to ensure that 100% of available supply will be used, resulting in the maximum return on investment. However, if more customers than the seller expects do wish to purchase or use the sold commodity, it may leave some customers lacking a service they expected to receive.
Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing, is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. Businesses are able to change prices based on algorithms that take into account competitor pricing, supply and demand, and other external factors in the market. Dynamic pricing is a common practice in several industries such as hospitality, tourism, entertainment, retail, electricity, and public transport. Each industry takes a slightly different approach to dynamic pricing based on its individual needs and the demand for the product.
Revenue management is the application of disciplined analytics that predict consumer behaviour at the micro-market levels and optimize product availability, leveraging price elasticity to maximize revenue growth and thereby, profit. The primary aim of revenue management is selling the right product to the right customer at the right time for the right price and with the right pack. The essence of this discipline is in understanding customers' perception of product value and accurately aligning product prices, placement and availability with each customer segment.
A travel website is a website that provides travel reviews, trip fares, or a combination of both. Over 1.5 billion people book travel per year, 70% of which is done online.
An airline ticket is a document or electronic record, issued by an airline or a travel agency, that confirms that an individual is entitled to a seat on a flight on an aircraft. The airline ticket may be one of two types: a paper ticket, which comprises coupons or vouchers; and an electronic ticket.
Airline reservation systems (ARS) are systems that allow an airline to sell their inventory (seats). It contains information on schedules and fares and contains a database of reservations and of tickets issued. ARSs are part of passenger service systems (PSS), which are applications supporting the direct contact with the passenger.
An airline consolidator is a wholesaler of airline tickets, sometimes described as a broker. Airlines make tickets available to consolidators at significant discounts and special conditions to those available to the general public. Consolidators seek to reach more niche markets, and are able to offer discounts and fare flexibility that is relevant to the target group.
A fare basis code is an alphabetic or alpha-numeric code used by airlines to identify a fare type and allow airline staff and travel agents to find the rules applicable to that fare. Although airlines now set their own fare basis codes, there are some patterns that have evolved over the years and may still be in use.
An opaque inventory is the market of selling unsold travel inventory at a discounted price. The inventory is called "opaque" because the specific suppliers remain hidden until after the purchase has been completed. This is done to prevent sales of unsold inventory from cannibalizing full-price retail sales. According to TravelClick, the opaque channel accounted for 6% of all hotel reservations for major brands in 2012, up 2% from 2010.
An airfare is the fee paid by a passenger for air transport and is made up of the charge for a passenger to fly from an origin to destination and includes the conditions, rules and restrictions for travelling on the airfare.
References
- ↑ "Travel Agents Could Lose Out in the Dynamic Packaging Battle". First Conferences Ltd. 2005. Archived from the original on 6 February 2005. Retrieved 19 January 2005.
- ↑ "Method and apparatus for the composition and sale of travel-oriented packages". United States Patent Number 7,136,821 Inventors: Kohavi, Bar-david, et al. 2006. Retrieved 16 November 2006.