April 1, 2014
There has been a lot of controversy in the UK just recently about the price that people pay for holidays (vacations for the US readership!). Peak time holiday prices have always been high, but recently there has been increased debate, stemming from a law introduced in September 2013 which removed the discretion that schools had to allow parents to take their children out of school for 10 days per year, to now only being able to do so in “exceptional circumstances.”
It seems that “exceptional circumstances” doesn’t stretch to taking children out of school to go on family holidays during off peak times. With the tightening of the rules there has been a large increase in the number of fines handed out. Individuals impacted have taken to social media to vent their anger, and a petition has even been created to demand price controls.
Suddenly, tour operators are being painted as villains, the vitriol in the press and social media almost matching that directed at much hated utility companies.
Interestingly, it turns out the fines levied may actually be less than the increased cost of going on holiday in some cases, so there may be an incentive to flout the law, if you are prepared to have a criminal record and risk a jail sentence to go with it. Indeed, it appears one company has had a look at the situation and added a “Customer Fines” element to their price waterfall.
So, is there anything we can learn from this mess:
Firstly, I fear the consumer may not have fully thought through the unintended consequences of their campaign.
Putting aside the fact that the government is unlikely to introduce the type of regulation demanded, if you were a tour operator what is the first thing you do in the unlikely event the government decided to regulate the industry so that prices were a maximum of 50% of off-peak price?
For me, I would be making sure that my peak season pocket price was protected. There are two ways that immediately spring to my mind to achieve this:
1. Increase the price of off-peak holidays, so my peak prices did not break any cap – not great news for those who don’t have children and holiday in off peak times. I suspect a longer term consequence would be that some resorts would become unviable, close and reduce supply in peak time further.
2. Find ways of changing the relative value of their offerings in summer and winter. For example, winter holidays would be priced relatively higher bundled with all-inclusive options for food and activities, whereas the summer holidays would be de-bundled.
Let’s say though that prices were somehow kept artificially low in summer? Well since this is the B2C market and prices are elastic, low prices are going to lead to a surge in demand, the end result of which would be that some families won’t be able to go on holiday, not because of price but because those resorts have sold out.
There is a further lesson here for companies that want to avoid becoming perceived as price gougers.
In the first article I linked to above, the following quote from Center Parcs, a leading operator of family orientated outdoor pursuits, caught my eye:
“We reduce our prices significantly during off-peak periods to reflect the lower demand at these times,” it said, adding that it reinvested “millions of pounds each year” into its holiday villages.
Here Center Parcs is trying to do two things:
1. They are trying to change the conversation so that the high prices are the anchor price and off-peak prices are a discount of the full price. This would probably be slightly more effective if their website didn’t do the exact opposite, setting a low anchor, as click bait to entice the user to find out more about their holidays.
2. They are trying to communicate the value of their offering. Although not the message I would have chosen (it seems to have been stolen from a utility company talking about power stations), they are setting out the value case for their prices, linking it to the quality of their resorts.
If you were a tour operator faced with impending price controls, what would you do to protect your margin?