L-TUR: Competitive Pricing Plays a Big Role for Us
As part of the Pricing Study 2015, Prof. Dr. Hans-Christian Riekhof conducted an interview with Stefan Baumert, Board Member of L’TUR.
Stefan Baumert is a member of the board of L’TUR Tourism AG and is responsible for pricing, tourism purchasing for flights and hotels, and the associated IT applications. After studying business administration at PFH Göttingen, he started his career in 1999 at TUI Germany and was responsible for various areas, including yield management, planning & pricing, and hotel purchasing. Since January 2014, he has been the product manager at L’TUR.
Prof. Riekhof: Are there any research results from our 2015 study that particularly caught your eye, that you did not expect?
Stefan Baumert: Two results particularly struck me: Firstly, that only 24 percent of the companies surveyed have a pricing department or a pricing manager, although 48 percent of those surveyed consider this to be sensible. Secondly, the fact that 64 percent of respondents stated that the operational pricing decision-making authority lies at the management level, with just as many respondents considering their company’s pricing structure to be complex or very complex. In my opinion, these statements reinforce the meaningfulness and necessity of dedicated pricing resources, even if not all operational pricing decisions necessarily have to be made in this function.
Riekhof: Are there pricing strategies and pricing processes in your industry that you consider to be a special feature and that probably do not exist in other industries or not in the same form?
Baumert: Due to various price comparison portals for package tours, there is a very high price transparency for the consumer. Therefore, competitive comparisons play an even greater role than in other industries. Another special feature is that tour operators usually work with travel agencies in the commercial agent model. This means that the sales outlets usually do not have pricing authority and there are the same sales prices in all sales channels. Therefore, there is no price advantage on the Internet for package tours per se, and tour operators do not differentiate their sales prices according to the costs of the respective sales channel.
Prices change faster today than 10 years ago
Riekhof: What changes does pricing in your industry undergo? Is there a certain dynamic of change or are prices established today in the same way as 10 years ago?
Baumert: Prices today are subject to a much greater rate of change than 10 years ago. Service providers (airlines, hoteliers) have increasingly established their own yield management, and so there are increasingly daily prices, which tour operators also have to deal with. This places high demands on the IT systems used, as millions of data records have to be processed within a short time, and it also increases the pressure to make one’s own pricing even more intelligent and sophisticated, as price margins are also increasingly being exploited by the service provider. Seasonalities are already much more strongly reflected in the purchase prices today than was the case 10 years ago. Due to meta searchers and other comparison portals (e.g. holidaycheck, check24), there is also a higher product/price transparency today, which also places higher demands on one’s own pricing competence.
Riekhof: What are the prices in your company mainly based on: costs, competition, or the customer?
Baumert: Since the purchasing costs make up a large part of the sales price, they naturally play a very big role. In addition, sales prices are very much based on competition. All customers basically receive the same sales price, but personalized discounts already play a certain role today and will do so even more in the future. While action or CRM discounts are still distributed “with a watering can” today, the future will be about playing out discounts much more targeted to certain customer groups (e.g. children’s discounts only to families, loyalty discounts to customers who are about to book and have already researched several times on the website, etc.).
A few special features beyond the usual
Riekhof: Are there pricing management tools and procedures in your company that you would describe as groundbreaking? Or does pricing in your company – for good reason – rather follow industry-standard rules and customs?
Baumert: Since we are in direct competition with almost all of our products, as the hotels are also offered by other organizers, competitive pricing and thus the usual industry practices play a big role. However, there are a few special features beyond the usual, such as a price comparison discount, which is deducted before booking if the product is found cheaper on another homepage, or the possibility of limited price adjustments in the shops (so-called Local Pricing) to exploit individual price readiness at the customer level.
Riekhof: Are there special tools or instruments in your company with which you ensure the implementation of the pricing strategy?
Baumert: Our Data Warehouse offers detailed reporting options on all transaction data and thus on price and margin development on a daily basis. To a limited extent, it also offers the possibility to evaluate price comparisons automatically.
The pricing itself is done via percentage mark-ups on the purchase costs and is completely rule-based, which makes it possible to price an almost unlimited portfolio of hotels and flights with a small team of three to five people. The rules can be prioritized among each other, so that we can control from a rough level, for example a 20 percent mark-up on all products in a destination, to a very detailed level, for example advertised corner prices for a specific offer. Demand, price comparisons and margin development are constantly monitored, and the rules are continuously adjusted accordingly.
Riekhof: To what extent have you already exploited the value creation potentials in your company that lie in professional pricing?
Baumert: Many aspects are already well established, the next step is to expand personalization, for example through discounts and automation. For example, it is conceivable that pricing rules are automatically adjusted based on price comparisons or the conversion development on the homepage, or at least automated suggestions are made to the pricer and opportunities are pointed out. This makes it possible to identify margin potentials in a pot with several billion offers. Since we work with completely dynamic, daily updated purchase prices, speed plays a big role, so there is no way around system support.