St. Moritz is satisfied with dynamic pricing strategy
The mountain railways of the Upper Engadine have been offering their guests the dynamic price model «Snow Deal» for two years now. Guests who buy their ski ticket early benefit from attractive offers for ski tickets. The implemented Dynamic Pricing has also proven its worth in the last winter season 2019/2020. New, however, is the pricing partner Pricenow, with whom the Upper Engadine mountain railways have been using the dynamic pricing model since last winter. In an interview Beno Suter, Head of Finance and Accounting, talks about the experiences and results of last season with Dynamic Pricing and gives a look behind the scenes.
Pricenow: Mr. Suter, Pricenow supports Engadin St. Moritz Mountain Pool since last winter season in the implementation and deployment of Dynamic Pricing and Data Analytics Services. For the implementation of the pricing model, Pricenow advises each mountain pool based on their individual situation and strategic goals. Which points were particularly important for you?
Beno Suter: It was important for us that our company and our pricing model are considered individually and that there is no attempt to sell a standard model.Understanding the mountain railway industry and our individual pricing requirements is a crucial point for us: When you work with Pricenow, you quickly realize that they have a comprehensive market understanding of the industry and that the pricing model was developed for the mountain railway industry. Pricenow responds individually to customer needs and the exchange is open, direct and uncomplicated. We have enjoyed the implementation with Pricenow and the results we now find reflect the knowledge and skills of the Pricenow team.
«A dynamic pricing strategy enables us to address the different customer groups with their different willingness to pay.»
The data analysis that takes place beforehand is particularly important when creating the dynamic pricing model. By analyzing the historical data, we identify the relevant factors influencing the purchase and usage decisions of the ski guests. In the Upper Engadine, we also travelled directly to the ski resort in order to conduct a data-based market research. Why was this important for you and what were the main conclusions you were able to draw from it?
We already started implementing Dynamic Pricing in the 2018/19 winter season with another partner. At that time only our historical data was analyzed and we had not carried out any market research. The dynamic pricing model in the Upper Engadine also attracted a lot of attention in the media, among other things because of the day ticket price we set. We wanted to find out comprehensively and statistically with a professional partner how the new price structure was received by the guests and if there was potential for optimisation. The market research enabled us to generate direct feedback from our guests.
The results of the market research showed that there are two different customer segments: Multi-day ticket and day ticket guests. This differentiation based on different price models for these ticket types can be ideally implemented in Pricenow’s model. Dynamic Pricing enables us to create an exciting price differentiation and therefore enables us to address different customer groups with different willingness to pay. Some people have a high willingness to pay, while others have a low willingness to pay. Some people, especially families, appreciate early booking advantages and make active use of them. Others want to retain the freedom of spontaneous booking and are prepared to pay a higher price for it. Our customers are very heterogeneous and a static pricing system cannot do entirely justice to this.
A major milestone in the joint implementation phase was the development of a fully automated interface for price input into the Axess POS system. Over a period of several months, we worked together with you and Axess on a solution that is completely new in this industry. This was a courageous step for you as well, which certainly brought with it some challenges?
When we made the strategic decision, it was clear to us that we wanted an automated solution. In the first year this was not yet fully possible, but with Pricenow we were able to implement this technically for the last, second season. We needed courage, perseverance and persuasion to create an automated interface. Pricenow was the first company to develop an interface that feeds prices into Axess POS systems. This was an innovation that did not exist until now – and accordingly took a lot of time. But we are convinced that this is a win-win-win situation for all partners, which offers an enormous added value!
«The positive expectations were more than met: 15% of the day tickets and even 70% of the multi-day tickets have already been booked in advance.»
The winter season, which started so optimistically, unfortunately had to be ended rather abruptly this year due to the COVID-19 situation. How did you experience the course of the season until mid-March and did your expectations of results in the cooperation with Pricenow turn out to be fulfilled? Which conclusion can you draw now with the current Corona situation?
The pre-sale of the ski tickets was very pleasing. Many of our guests take advantage of the early booking benefits and secure their ski pass well in advance. The positive expectations were even more than fulfilled. 15% of day tickets and even 70% of multi-day tickets have already been booked in advance. This gives the guest a good feeling of having bought the ticket early and at an attractive price and gives us an improved planning security regardless of the weather situation on the skiing day itself.
The external factors were also appropriate last year: we had snow early on and the weather showed its best side on the most important days. The Corona situation hit us as a company hard. We would have had perhaps the best days on the slopes with the best weather conditions still ahead of us. In the end, however, we got off lightly due to the timing compared to other destinations which have their main business in spring. The season up to mid-March was very satisfactory and, given a normal seasonal course, there could have been an excellent winter season. In addition to the good external conditions, we can also attribute the promising figures to our pricing strategy. Thanks to Dynamic Pricing, we were able to motivate guests to book early, increase the average ski pass duration and achieve – or even exceed – the economic goals in some areas.
In addition to the positive sales increases, were there any other goals you were pursuing with the introduction of the new dynamic pricing model and how were they achieved?
One of our strategic goals is to increase the number of skiers in the entire destination. This season we have seen that the Skierdays have increased more than the overnight stays in the valley. This could be an indicator that the proportion of skiers is positively influenced by the pricing strategy. By up-selling pricing incentives, for example, we are able to encourage guests to ski with us one day longer than in previous years – the results confirm this success. Increasing the online share of ticket purchases was another goal we had set ourselves. We were able to achieve this through early bookings. The increase in advance sales was also successfully realised.
«Only every third 6-day ticket is bought at the counter on site.»
With the second winter season with dynamic prices, your guests have changed their purchasing behaviour of ski tickets: with up to 300 days in advance, customers now book their tickets. Which changes do you notice particularly strongly in this context and what effect does this have for you?
The attractive early booking conditions are a strong incentive for customers to buy their ski tickets online early. The fact that the tickets are purchased in advance and online gives more planning security and allows us to optimally plan our personnel resources. It also reduces crowds at the counters and shortens waiting times – which ultimately benefits our guests. For example, only every third 6-day ticket is bought at the cash desk. Furthermore, tickets bought in advance at reduced prices are independent of the weather, one of the biggest risks in a destination where there are many alternative activities on offer in addition to skiing.
The increased early booking behaviour makes it all the more important that the realised customer demand is included in the price calculation on a daily basis. The Pricenow Pricing Engine incorporates daily demand into its price calculation fully automatically across all sales channels. However, the mountain railway also has the option of overwriting the prices in our “Pricing Dashboard” itself in order to react to local market conditions in the best possible way. How do you use this possibility and which functions in the pricing dashboard are particularly relevant for you?
In the initial phase with a dynamic pricing model it is extremely important to build understanding and trust. Usually an automatic algorithm makes better decisions than a human being. With the Pricenow “Pricing Dashboard” it is clearly shown which mechanisms in the background influence prices. In this way, the responsible employees and management can easily understand how prices change and trust in the system increases significantly.
If, in exceptional cases, the human being wants to intervene “against” the algorithm, we can also manually overwrite the prices if necessary. This is especially useful when we have the feeling that local conditions are changing unexpectedly. It is important for us to be able to make adjustments during the season if necessary and to have the possibility to react at any time. With the “Pricing Dashboard” we want to learn as much as possible and intervene as little as possible, as this is an automated process.
Speaking of tools – you also use our data analysis tool, the Business Intelligence Tool. This tool provides important key figures and comprehensive insights into price and sales development on a daily basis. What decisions can you make based on the data analysis?
With the BI tool, we can access the figures in real time and on a daily basis and see how prices are changing. This enables us to analyze whether the jointly defined pricing strategy has proven to be successful. For us, it serves as a controlling instrument for our defined measures, so that we can further adjust the price strategy if necessary.
On the basis of the comprehensive data analyses, the price model will also be continuously optimised for the coming winter season. What are your goals for the next winter and what insights would you like to learn more about?
This season we have already achieved many of our goals. We will certainly improve the price model based on the data generated. We would like to maintain the positive developments we have generated this season by continuously developing our products.
We assume that the market will continue to develop in the next season, also due to the corona situation. We will observe the developments and take them up for the benefit of our guests and our company. With our cooperation with Pricenow we have the right partner and the tools to do so.
Many thanks to Beno Suter for the detailed discussion!
Pictures: © Engadin Mountains