(c) TT is an upmarket provider and therefore prices of travel are high. While, in most industries,
upmarket sectors tend to be less price sensitive and more quality sensitive than downmarket
sectors, we have noted above that the competition in TT’s business is significant. This may
therefore force discounting in order to match competitors. However, where there is a bespoke
package of travel arrangements the price is less comparable and the level of service may be more
important.
A key point also is that the travel agent is only able to discount its commission, which has only a
marginal impact on the overall cost of the holiday cost. Thus, if commission is $100 and this is
10% of the holiday value then a 50% reduction in this commission to $50 is only a 5% reduction in
the overall cost of the trip to the customer.
It should also be noted that price is a signal of quality. If, as the FD suggests, discounting
indicates a perceived cheapening off the service provided then this may have a long term
reputational effect.
Overall, the elasticity of demand is key, in that if discounting increases the volume of sales
significantly then it may be advantageous.
The policy of discretionary discounting does seem more appropriate than a general overall
discount. This is because it enables price discrimination on a customer by customer basis as the
manager can make an assessment of the price resistance of each individual. If however the
discounting becomes more or less automatic by the manager, or expected by the customer, then
the policy moves from discretionary to general discounting.
In terms of the evidence available, it should be noted that, despite discounting, the number of trips
has continued to fall. Clearly, without discounting it the number of trips may have fallen more
sharply but the success of the policy may nevertheless be questioned. |
