A new ski-pass pricing strategy, recently introduced at several ski resorts in Switzerland called “Dynamic Pricing,” means that prices vary according to demand across all sales channels. Historical demand data, advance booking, snow and weather conditions are taken into account to arrive at a “dynamic price.” This pricing system is viewed by some with skepticism, and not yet widely adopted.
In this article we make reference to dynamic airline ticket pricing as a forerunner to ski-pass dynamic pricing and examine the role data marketing can play in driving an increase in revenues. This, to provide a more holistic customer offer, as well as add value for money.
From all elements of the extended 7 P marketing mix in hospitality (product, place, price, promotion, people, process and physical evidence), a company’s pricing strategy has the greatest potential to affect profitability.
Revenue management in the tourism industry was first developed in the late 1970’s in the airline world. First, business and economy cabins were divided into “buckets” or sub-classes. These buckets offered different pricing and conditions based on historical demand and current events, all of which influence sales. Individual price buckets were opened and closed by revenue control analysts according to demand. The goal, to achieve maximum revenue for each flight on any given day.
Load Factor (number of passengers on a flight) and Yield (the price they paid for a ticket to fly) became the two most common measures of airline revenue and profitability. The management of these two factors (revenue management) contributed massively to the profitability of airlines. Matching supply with demand is now widely used across numerous other tourism sectors such as hotels, rental cars and cruise lines to name just three. And it is fair to say these all learnt from airline revenue management and pricing.
But despite the airlines’ success, operating a dynamic pricing strategy is risky, and revenues can fall if large numbers of customers switch to other suppliers with lower price offers (as occurred with the introduction of low cost carriers (LCC’s) started by Southwest Airlines in the 1970’s).
Price as a key demand factor in the airline sector can be evidenced in Europe with LCC “Ryanair”, which in 2020 outperformed The Lufthansa Group (which includes Swiss Air Lines) by carrying the most passengers from all European based airlines at 51.7 million. EasyJet, another LCC achieved 50.8 million passengers transported in the same year. The LCC’s operate a lower cost model compared to national flag carrier airlines, which makes it possible for them to offer cut priced fares to drive passenger demand.
The airline industry has now taken its pricing strategies much further than “just” offering dynamic fare pricing. Ancillary services provide additional revenue sources and airlines make significant income from selling incremental products and services to passengers, such as checked bags, extra legroom, food sales, car rental, hotel bookings etc. This revenue is now estimated at being US$50-55 billion a year, which actually exceeds the airline industry’s US$31 billion ten-year average annual operating profit. The basic airline seat can even be sold as a quasi loss-leader, for the total revenue a passenger can bring the airline. Airlines are continually looking at ways to improve how they market to passengers to increase this.
Back to the Ski Industry and specifically Switzerland, where the traditional pricing is now widely recognised as being insufficient to ensure profitability – hence the introduction of dynamic pricing. However, looking at market leaders in the international ski sector, especially the U.S., dynamic pricing only forms part of the total marketing mix. Technology to support pricing strategies is no doubt key, but data management to really understand and capture customer needs along the entire customer vacation journey are equally, if not more important.
One reason for the change in ski-pass pricing strategy in Switzerland could be that during the last 10 years, Swiss winter resorts have lost 1.5 million overnight stays linked to traditional guests from Europe. Although these have been somewhat replaced by guests from Asia and other areas, the average percentage of foreign guests today has now dropped more than 50%.
The Swiss ski industry is also facing a demographics issue with both its domestic and foreign customer bases. Baby boomers are retiring, and new generations are less engaged in the sport, resulting in a long-term decline. Some noteworthy points affecting demand and pricing:
- Partly due to the recent pandemic and geo-political concerns, the world now finds itself in a period of rising inflation, resulting in higher costs and less disposable income.
- Ski-pass pricing is becoming a more sensitive customer issue going forward and an important criterion in the marketing mix for ski resorts who need to deliver more value and not just raise prices, which will ultimately not be sustainable.
- In the short-term resorts will need to be more focused around service and value for money.
It was recently announced in the Swiss press that Vail Resorts based in the U.S. have purchased a 55% stake in the Andermatt ski region from investor and sole owner, Mr. Samih Sawris. The CHF149 million investment equates to a majority share in Andermatt-Sedrun Bergbahnen.
Commenting on the sale Mr. Sawris stated, “This is a great day for me” and questioned about what it means for the people and guests of Andermatt he replied: “All the conditions that the people in this valley have received will remain. The people who live here are our partners. They should not be affected by the market when suddenly the whole world comes here and prices skyrocket.”
Whether that statement is reassuring for the residents of Andermatt or not, time will tell, but the need for “professionals” up on the Mountain will no doubt mean that Andermatt will adopt a Vail Resorts pricing strategy sooner rather than later. And if press reports are anything to go by, there should be more to come, as Vail Resorts are a lot more, than just about innovative ski pass pricing.
The former CEO and now Board member of Vail resorts Rob Katz joined the company when they had just 5 resorts and the share price stood at US$31.80. Fast forward 16 years and there are now 37 ski resorts in 3 countries and 15 U.S. states in the Vail Resorts portfolio. The stock price (March 2022) is now around US$260. Katz is accredited with changing the perception of the season pass and making it accessible and affordable for the mainstream. At the same time, he is referred to as the person who has changed the ski industry for good.
However, along with all the fanfare and increase in share price, there are also some social issues recorded that continue to be addressed by the now new CEO Kirsten Lynch, and interestingly Vail’s former data-driven head of marketing.
Looking at one of Vail’s headliner products, the Epic Ski Pass, we see that it offers more than just a good priced ski pass:
- Access to Vail, Breck, Park City, Whistler Blackcomb and more.
- Limited access to partner resorts in North America, Europe and Japan.
- Includes Epic Mountain Rewards – 20% off food, lodging, lessons, rentals and more.
- Refunds for job loss, injury, illness & more with Epic Coverage.
- Plus, discounted tickets for you, friends and family.
Pricing technology and data marketing continue to shape the way ski resorts market themselves in these changing times. By understanding the customer better and creating more loyalty through fair deals with interesting offers, Vail Resorts has become a leader in its sector. Offering a fair market price with great services at the front end, dealing with social and environmental challenges on the flip side. And if its record to date is anything to go by, the signing of the agreement between Vail Resorts and Andermatt, should resonate well, both with local residents and visitors to Andermatt alike.
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