The Nature of the Product
"I’ve to design by myself the product package, do some marketing and promote it... If I’d give the task to another person – a certain firm – who doesn’t know me, the product doesn’t necessary look like me. The product in the advertisement should also look like me and just this makes it difficult to order such services…”
“ In principle, we can divide our products in two categories: the ones we do ourselves and the ones we do together with somebody else. We’ve however more of these kinds of products that are done in co-operation. Well, this naturally means that our products have to be so good that somebody else is interested to combine it with a broader product idea, but also certainly the other way around.
Of course, we are also strict concerning who we co-operate with. One thing that we have also realised is that pricing is a difficult thing – especially when the product is built on inputs from different companies and when on top of that one has to consider the famous commission – or what it was! All in all, our task is to build the product in such a manner that we are able to sell it and that customers want to buy it. It is often so that first we need to sell the product a little bit cheaper so that customers become familiar with it. If one set a higher price from the beginning, the customer doesn’t understand the reason for the price and thus they don’t buy it.”
It is important that the product is comprehensive, its communication and marketing strategy are credible and pricing strategy is in accordance with the product developers working style as well as the meaning and story of the product.
Turning the story into a product: Stanglwirt Hotel
Austrian bio and wellness hotel “Stanglwirt” is a high level, high quality family-owned company, whose story was born from the combination of local history, traditional agriculture and luxury services. It is difficult to put the hotel and its services within a particular category, since it offers everything to everyone, always honouring its 400 years of history. The story of the hotel is reflected in all kinds of services such as spa, conference facilities, family activities, outdoor activities and restaurant facilities. In addition to this, organic farm production represents the heart and vitality of the hotel.
As Balthasar Hauser himself admits, the hotel has been developed continuously always taking into consideration the history and nature of its operating environment. The shark aquarium – located in the sauna and water world section – is also part of local history, since 400 million years ago huge sharks swam where meadows grow today. The special products of Stanglwirt hotel have helped the company to perform well during the economic crisis. Although the hotel is clearly more expensive than other hotels in the region, it has remained one of the most popular places.
A multi-layered product is suitable for different occasions: Levi’s Seven Seasons
Levi as a destination level product has been multi-layered by building it according to the changing seasons of the year. The splitting up of the year in seven periods reflects the influence of the rhythm of nature in the way of life and everyday practices of Sámi and Lappish people. Three extra seasons have been added to the general four calendar-based seasons.
This idea, which has its origin in Lappish traditions, has been brought to our modern day. Levi’s seven seasons follow the natural rhythm of the year, creating an image of Levi as year-round destination.
While reindeer herding and round-ups do not determine the rhythm of life of locals and visitors anymore, light conditions, temperatures and the variation of natural phenomena are still present and recognisable across the seven seasons. All this allows visitors to participate in different activities and thus experience Levi differently depending on the season of the visit.
Photo: Levin Matkailu Oy
In addition to traditional nature-based activities, each season offers a different and unique set of events, happenings and tourism services that are in line with the seasonal rhythm. The seven seasons’ idea has not remained an empty promise. Tourism organisations in Levi are actively involved in product development that aims at creating unique products for each season.
From independent services into a whole experience
In destinations such as tourist centres and resorts tourism organisations are actively working towards raising the awareness and creating a positive image of the place. Product development and strategic planning at the local destination level have been implemented as a co-marketing strategy usually limited to advertising and sales promotion activities. This can lead to significant discrepancies between the image of the destination, the everyday life of the place, service offering and experience-based elements. It is common that companies of different sizes compete with one another due to the plain reason that a customer cannot be at two different places at the same time. Companies, however, should be able to co-operate so that the customer comes to just that particular destination.
In rare occasions tourists come to a destination because of a particular company. If we consider our trips to Mediterranean beach resorts, we usually think of a particular destination, experience being in a particular region and feel attached to a particular location. Although good service experiences with individual companies would remain in our mind or we would independently visit certain sites, we will always think of the destination as a whole.
Putting together and developing a whole destination as a product is challenging and difficult. However, there is a need to create in customers’ mind the image of an easily accessible, viable and experience-based destination – something that should also be true in practice. As a starting point for developing such a wide product, it is necessary to establish multi-stakeholder dialogues to achieve a common understanding of who they want to be and what kind of a story they what to tell to customers and partners about the place.
Sustainable pricing = sustainable product
Always offer end-customers the same price
Pricing plays a central role in product development. Indeed, the price tells a lot about the product but also about the producer and the destination. Pricing is particularly challenging for small tourism businesses since products – in the international leisure tourism market and leisure segment – go through at least two intermediaries of the distribution channels: international tour operators and DMC/incoming travel agencies. This is part of the nature of tourism products that should not be perceived negatively in the minds of tourists.
Sustainable pricing means that in the distribution channel of the international leisure tourism market customers get the same price irrespective of who they buy the product from. When tour operators sell products at a higher price than the local service provider, it usually causes scepticism among customers about the truthfulness of tour operators. Sometimes complaints lead tour operators to remove products from their catalogues and stop selling them. As a result, the whole destination and different parties related to it suffer from the negative reputation. The number of customers arriving through tour operators is, however, significant and predictable as soon as co-operation has been going on for a few seasons.
Service providers should set a price for international leisure tourist that already includes the commission fee of intermediaries. It is recommended to calculate 25-30 per cent of a commission margin. In that way pricing is kept more or less consistent at the different levels of the distribution channel.
Let customers determine the price
In some cases, even the end-customer has been given an active role in setting the price. The village of Längenfeld in the Austrian Alps has been inviting customers – for a couple of weeks during the summer – to determine the price of the services consumed by relying on their own personal criteria. This experiment is at the same time a PR stunt, customer research and a development project, in which pricing is in the spotlight. Similar experiments have been applied to for example restaurants and design shops.
Amusement parks as pricing testing labs
For decades, amusement and theme parks have been pondering pricing principles, customer payment practices and what customers actually pay for. Is the park entrance for free, but customers pay for the services used? In contrast, customers can pay for the time that they spend in the park area; that is, they queue once to buy a wristband that guarantees access to all devices and attractions but does not include food and beverages. In this case, customers pay a lump sum without knowing which attraction and how many times will be used. In addition, each customer pays the same amount of money as everyone else irrespective of who makes more use of the park services.
What if each customer when entering the park would receive an electronic wristband that registers his/her journey through the park including movements, services used as well as snacks and beverages consumed. As the customer leaves the park, the wristband could give information about the customer’s highest heart rate (peak experience and tension), and other physiological values, personal carbon footprint and time used, and compare him/her in relation to a visitor average rate and so forth. This could enhance the experience relatively. Finally, the code reader would calculate a price according to the customer experience – making the price customer oriented. In that way customers would not need to continuously pull out their wallet at every attraction, but they could focus completely on the park experience. Or what if the customers when leaving the park would be given the chance to decide by themselves how much they want to pay for the experience?
What is this about?
The world is full of stories and a large variety of life styles, which can lead to impressive products and thus create common meanings. It is important to know how to choose from all of them the most suitable for us, our business partners and operating environment. We cannot try to do everything for everyone. One’s own operational capacity and the ambit of stories (e.g. intra-generational, multi-cultural) determine “what can be produced for whom and where”.
Pricing is an important part of product development that can be tied to the story that the company has decided to tell. Drawing upon the logic of product profitability, choices can be made regarding the number of customers needed. However, it is important to keep in mind that the pricing principles of producers are reflected in the payment practices of the customers. Furthermore, one needs to ponder the level of profitability for the producer and business partners, when and where the customer pays and what he/she gets. And how does the product change when price and pricing principles change?
Product development is about making choices. However, these choices need to be carefully examined so that we avoid excluding, for example, potential customers and business partners. In addition, we should remember that stories are not just offered to customers, but customers also take part in constructing and telling the story.
Open The tourism co-creation workbook (link on the right). It will help you to apply the content of this page to your own case.
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