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Introduction: The determination of an effective and attractive pricing strategy is essential to ensure success of a business within the competitive business environment. At the same time, distribution strategy is also essential to attract the customers by providing them the required products and services at the convenient location (Madura, 2006). To make a better pricing and distribution strategy, it is essential to link them with the target market. This paper analyzes pricing and distribution strategy for the travel agency business that operates its business in Virginia and targets selling Caribbean cruise packages to tourists.
Pricing Strategy: Pricing decision for a product or service is quite difficult as it is the main element to determine success and failure of a business. Generally, there are two approaches of pricing decisions that are followed by a business one is cost plus pricing approach and other is market demand pricing approach. For the different businesses, different types of pricing approach are used (Zacharakis, Spinelli & Timmons, 2011). For the business of travel agency in Virginia, the cost-plus pricing strategy will be determined.
This pricing strategy would be effective as it will cover all the costs and will also be lower in the market that would be attractive for the target market. At the same time, cost plus pricing approach for travel agency would also be effective to attract more Caribbean cruise travelers as they are from middle income group and mostly prefer to travel cruises (A1-Discount-Crusises, 2011). To make the business financially viable, a significant portion of the profit will also be added in the prices of the travel agency’s services, but it will not be more than the customers’ expectations for the commissions for the booking of resorts, cruise, hotels etc. This pricing strategy will be effective to keep the prices lower by covering all the costs of traveling business and to make it financially viable also within the industry (Bennett, 2009). Under this pricing strategy, the profit margin will be set about 5% of the total cost initially that would be increased further after facilitating quality image and brand name of the business.
To determine financial viability for travel agency from this pricing strategy, it is assumed that there will be some cost variable cost components such as commission, resort expenses, cruise expenses, advertising expenses per service, while insurance expenses are assumed as fixed variable. The price per person for the travel agency would be determined equal to $4500 per cruise as it covers all the costs and commission amount. The cost of variable components is assumed to equal to $2900 per person for travel service, while the fixed cost would be $48000 per year for insurance. To determine the number of customers for the financial viability of Travel agency, the breakeven analysis will be performed. Following formula is used to determine the number of required customers: BEP = Fixed cost/ (Sales-variable cost) (Cafferky & Wentworth, 2010) = 48000/ (4500-2900) = 48000/1600 = 30 customers per year As per the analysis, Travel agency requires at-least 30 travelers each year to cover all its cost. To make the profit, it should try to attract more customers towards its services as increase in the number of travelers from 30 will generate profits for the business.
Cost-plus pricing decision would be effective for travel agency to survive in the market and to capture large amount of customers by charging a cost effective prices from the target consumers. Distribution Strategy Distribution strategy helps the businesses to determine the way through which they could reach their target consumers. There are different channels through which an organization could reach customers. But at the same time, the cost of using and convenience for customers should be considered, while making a decision related to the distribution strategy (Zacharakis, Spinelli & Timmons, 2011). The travel agency would provide its services to the customer throughout Virginia by making online presence. The services of travel agency would be offered through the online facility that would be effective to attract and reach at a large volume of customers. It would also be effective to reduce the cost of travel services by reducing the expenses of office or building establishment (Papp, 2001). This distribution strategy is selected as in the current business environment; most of the customers prefer travel services with the help of web world. The increasing use of internet would be effective to attract Caribbean travelers towards the services of travel agency.
This strategy also includes lower cost that is the main objective of travel agency to attract more customers. Other distribution strategies may create higher amount of cost for the business that may affect its sustainability within the business environment (Papp, 2001). The reduction in cost would be effective for travel agency to achieve competitive advantage over the competitors. At the same time, it would also be effective to create a brand image among the customers as they could compare the services of travel agency with other traveling companies within the region. The online distribution strategy would also be effective to determine the customer response and their requirements more effectively and to response them quickly that would also be effective to facilitate competitive advantage for the travel agency over the competitors (Buhalis & Laws, 2001). The target group will also feel convenient through this strategy as it will include less time of them and will provide all relevant information quite effectively. Conclusion From the above discussion, it can be concluded that the pricing and distribution strategy of a business should be determined by considering the target consumers. It is because pricing and distribution strategies are the main determinants to attract customers and to ensure success of the business. The pricing and distribution strategy should also ensure financial and operational viability of the business. For the travel agency cost plus pricing and online distribution will be effective to attract the target customers.
References: A1-Discount-Cruises. (2011). Cruise Demographics – Who is taking cruises? Retrieved September 26, 2011, from http://www.a1-discount-cruises.com/articles/cruise-demographics.htm Bennett, A.G. (2009). The Big Book of Marketing. USA: McGraw-Hill Professional. Buhalis, D. & Laws, E. (2001). Tourism distribution channels: practices, issues and transformations. UK: Cengage Learning EMEA. Cafferky, M. & Wentworth, J. (2010). Break-Even Analysis. NY: Business Expert Press. Madura, J. (2006). Introduction to business (4th ed.). USA: Cengage Learning. Papp, R. (2001). Strategic information technology: opportunities for competitive advantage. Idea Group Inc (IGI). Zacharakis, A., Spinelli, S. & Timmons, J. (2011). Business Plans That Work: A Guide for Small Business (2nd ed.) USA: McGraw-Hill Professional.
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