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Impact / 10.1.18

When Price is the Weapon of Choice

Posted by SITE Foundation

By Rajeev Kohli, CIS, CITP

There is no question that the tourism industry in India is under stress.  A very strong sense of “Chicken Little Syndrome” has set in, a sense of despair or passivity which blocks the audience from action.  The level of pessimism in our industry is high.

The reaction has also been pretty consistent. Fight on price alone. When the customer says, “jump”, we say “how high”. When the client says, “drop prices”, we say “by how much”. The desire to get business at any cost has overtaken the sense of business sustainability.

Competing on product, competing on innovation, competing on creativity are all tough. It takes investment of time and money. Competing on price, is easy. I can see how in a tough market reducing prices may be seen as an easy and reversible action. This may provide short-term gains, but it also leads to a price war and long-term consequences.

I remember when in the early 2000’s the Hyatt in Delhi dropped its rates for a particular operator. The reaction was severe with every other hotel matching or going lower to survive. Tour operators did the same with their margins. The recovery never came. We know of so many great European accounts where business was taken at a loss. No one has ever been able to make real money of those since.

  • The number of Incentive Travel Buyers taking steps to reduce costs has been increasing every year, moving from 73% in 2015 to 82% in 2018
     
  • On the Sellers side, “Working on greater creativity/innovative event design” is the most frequent action taken to increase value, versus cutting price.

    Source: Incentive Travel Industry Index 2018

Price – the only weapon that seems to be left, a weapon that erodes brand value, that erodes all the hard work one puts in to building their business. Cutting prices is the nuclear option. Once executed, there is no going back.

So, what can companies do instead of cutting their prices? There are several things, all of them connected with adding value to the client.

The first thing is to rethink your value proposition by offering more for the same price. These can be things that cost relatively little but have a meaningful impact for the customer. Would it not be smarter to give the customer more value for what they are spending? Offer more options and choices?

A second option is to have brand differentiation and sell different things to different segments. Like hotels do with luxury brands and budget brands in the same portfolio. We know of companies doing this.

Third is to be better at the way you communicate your value proposition to the customer. My business philosophy has always been that when business is down, you need to increase your marketing and communication. That’s when you need to express your fresh ideas the most. Unfortunately, the conventional action is to do the opposite.

Finally, as one looks at price, one also needs to look at costs. How can you reduce your costs? Realign your expenses. Firing employees is not the only solution. Find other areas where you can squeeze out a few dollars, every little bit counts.

When all of this has been done is when you should look at price reductions as a tool to compete. It should be your last option as it is by far the riskiest of all action you can take.

 

About Rajeev Kohli:

Rajeev Kohli, CIS, CITP, Joint Managing Director, Creative Travel Pvt. Ltd., New Delhi, India, served as SITE President in 2016 and 2017.  In 2017 he was recognized by Incentive Magazine as one of the Top 25 Most Influential People in the Incentive Industry.

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