The magic of the ice bubbles on Abraham Lake.
Price for Value
Once the itinerary is built it’s time to check-in on the pricing strategy for the new adventure.
A simple way we often come across is to simply add up all the costs and then adding a markup to cover overhead and profit. This is called “cost plus pricing” and has the advantage of ensuring that all expenses are covered while being a straightforward calculation. The most common way of increasing the price to show the added value of the experiential elements is to include additional components, like a take-away, which will increase the cost portion of the calculation. This can be combined with an increased markup percentage to reflect the intangible value of the experience.
A different approach, called “value based pricing”, looks at the value your guests put on the experience as the driving factor in deciding what the price for the new experience should be. This approach works best when we’re selling adventures based on the emotions they create. This accounts for the intangible value a purpose based experience create, which is much more than the sum of its parts. Implementing value based pricing requires a change of mindset.
- Start by establishing a target price based on:
- Similar experiences. Taking a look at what similar experiences are selling for in other destinations can give you a starting point.
- Local market conditions. Visitors are often willing to pay more for a similar experience in a well known destination. In general we find that our prices need to be 10 to 30% cheaper in Central Alberta compared to if we were based in Banff.
- Guests’ context. Visitors on a once in a lifetime vacation are typically willing to pay more for a unique experience than locals. Price according to your ideal guest but keep in mind that you may need to offer promotions to certain segments to keep your pricing aligned with the value they place on the experience.
- Alignment with other experiences you offer. A signature experience should be priced differently than a supporting experience. Where does this new adventure fit in your line up?
- Determine if you can offer the experience at the target price:
- Evaluate start-up costs. What is the minimum investment you need to make in order to bring this new adventure to market? How many tours will it take to recoup this investment?
- Determine ongoing capital costs. Equipment like snowshoes that are used for the tour will need to be replaced over time. This can be accounted on a per tour basis or as part of the overhead.
- Establish program delivery costs. Take a look at the costs associated with each departure.
- Decide on required margins. We find that this typically needs to be 20-40% or higher in order to cover overhead and generate a profit.
Use that information to determine if it is feasible to offer the adventure at the target price based on the expenses and desired margin. If the target price is not feasible, can the costs be reduced or the price increased?
A note on markup and margins. In the cost plus pricing method we multiply the total costs by a percentage amount to determine the final price. This the markup. In the value based pricing method we first calculate a price, then substract the costs to determine how much money is left as profit. That amount, usually calculated as a percentage, is our margin. Because of the way they are calculated the margin and markup percentage do not match up. A 40% margin is equivalent to an 80% markup.
The more unique and differentiated an experience is, the easier it is to charge based on value.
Fall Reflections in Waskasoo Park.
Train the Guides and Partners
Before we can deliver the new adventure we need to make sure that the guides and any partners involved are familiar and comfortable with their role. Putting together a detailed itinerary that includes an experience map, trail maps, stories to be shared, options to personalize the tour, the risk management plan and a complete gear list will make this much easier.
Build the Sales and Marketing Plan
The guest’s experience starts long before the day of their tour. To plan the full experience it helps to start with a journey map, looking at all the interactions and steps they’ll encounter along the way. This will help us develop the right messages at each stage, streamline the booking process and help build the anticipation for their adventure.
Bring to Market and Continually Improve The Experience
Finally, the new experience is ready. Well, almost…
Before taking a new tour to market it’s best to pilot the tour first. We’ve found that the best feedback comes from when we have a group of participants that include some industry professionals, a few of our ideal guests (often our regulars who get a “bonus” behind the scene adventure) and a few guests that aren’t our main market but that we’re likely to see on our tour. The feedback from the participants, combined with a staff debrief, helps identify things that still need to be refined before the launch.
Once the tour is in market it’s important to keep evaluating it based on guests feedback and staff experience.
Familiarization tour for the Crescent Falls + Ice Bubbles Tour.
Putting This Into Practice
The experience is now built and market ready. Time to have fun and head out for an adventure with our guests.
A package is about savings for the guests, a collection is about added value and an experience is about the feelings it creates.
A look at two different ways to craft experiences we often come across, each of them appealing to a different type of operators and guests.