Dynamic pricing strategy: ski resorts counter inflation with intelligent pricing

November 16, 2023
Given the ongoing inflation, ski resorts are increasing prices by an additional 7 - 12% based on the traditional cost-plus pricing. But is this approach sustainable today? Our article questions this method, highlights its limitations, and emphasizes why ski resorts should now consider alternative, dynamic pricing strategies. These are crucial to stay competitive and reflect the true value of a ski day.

Inflation and Its Effects on the Economy

Currently, inflation presents many companies with complex economic challenges. The increasing operating costs suggest a price increase, yet simple cost-plus pricing does not do justice to market complexity and consumer behavior. It carries risks as it merely considers an internal perspective. Specifically, it is noted that the real costs for skiing – after considering wage increases – have risen by 4 to 9%, compared with an increase in the collective wage index (CWI) in Austria by 3.06%.

Source: https://www.statistik.at/statistiken/arbeitsmarkt/arbeitskosten-und-tariflohnindex/tariflohnindex

The Dilemma of Ski Resorts

Ski resorts face the problem that they can hardly escape rising operating costs. Higher wages, energy costs, and maintenance expenses force operators to consider price increases. Yet, this approach is deceptive: not all customers can or want to accept higher prices, which puts operators in an even more difficult situation and potentially leads to a decline in customers. The risk is that eventually a larger portion of the market may drop out. A sophisticated pricing strategy is required to ensure customer loyalty and financial stability.

The Added Value of Dynamic Pricing

Dynamic pricing offers a compelling solution here. It is not based on ski ticket prices being uniformly increased, but on an intelligent and flexible adjustment of ticket prices based on expected and actual demand. This approach allows optimally considering the different willingness to pay of customers. On days with optimal conditions, when the demand and thus the value of the product is high, it is possible to increase prices substantially without observing a negative demand effect. On the other hand, moderate prices for risk-taking in the form of early bookings or generally lower demand help to better utilize the facilities.

Advantages and Implementation of Dynamic Pricing

Dynamic pricing is more than a reaction to inflation – it is a sustainable strategy that adapts to changing market conditions and enables efficient pricing in ski resorts. The underlying algorithms and data sources for this pricing method are complex and take into account many different data, including historical transaction data, weather conditions, current booking behavior of customers, and much more. This leads not only to more efficient pricing but also to greater acceptance among guests, as they experience a price structure that they perceive as value- and fairness-oriented. Customers thus have a significant influence on pricing, based on their own price-performance perception.

Adaptability and Economic Efficiency through Dynamic Pricing

Dynamic pricing allows for flexible responses to unforeseen events and securing economic success. In the event of sudden changes in demand, such as weather changes, it allows for quick and effective price adjustment. The goal is to set an optimal price daily that maximizes both customer value and revenue.

Conclusion and Outlook

Dynamic pricing allows balancing the financial pressure of inflation without sacrificing price accessibility. It is a dynamic, data-driven balancing act that requires fine-tuning between cost coverage and market demand. With proper implementation, dynamic pricing can significantly increase profitability without the risk of pricing oneself out of the market. An exclusively inward-looking perspective is risky as it does not consider market reactions and customer demand.

Engaging with dynamic pricing opens up various opportunities to gain competitive advantages and respond to challenges in a dynamic market environment. We invite you to a non-binding initial consultation to discuss the benefits of dynamic pricing for your ski resort.

In the next article of our series "The Art of Price Optimization in Times of High Inflation," we analyze the value of a ski day and the purchasing behavior of ski guests.

Contact us to learn how you can gain competitive advantages through dynamic pricing.

Written by Reto Trachsel and Jonas Meuli in collaboration with co-author Veronika Büchi

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