Case 8 : Gondolas

By

Herry Windawaty Mila Wulansari Sylvia Tjahyadi

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What can be done to increase the capacity of gondolas? What revenue impact would

this have ? Recall : How to increase the capacity of gondola The Impact will emerge from revenue side

Theory Revenue Management, Lovelock & Wirtz, Services Marketing, 7th Edition, Pearson, 2011 Revenue Management is value creation as it ensures better capacity utilization and it reserves capacity for higher-paying segments. It is a sophisticated approach to managing supply and demand under varying degrees of constraint in response to the price sensitivity and needs of different market segments at different times.

Gondola has become a widely publicized icon of venice , whenever the tourist visit Italia they always search for Gondola in venice. However while demand for gondola is extremely high , the number of boat has dropped from several thousand gondola in the eighteen century to about 400 today. The way to increase the capacity of gondola that we should altered the design and operation of gondola in order to able accommodate more tourist and generate additional revenue. The step that we should do are below : We need to do some modification of gondolas design the lengthened and narrowed the boats ,elaborate oar link was develop so that the gondola could be steered one oarsman. The firm need to be focused on this changes design because as we knew that the demand of the passanger has increased so that the firm has to do this changes so that the expectation of the guest will fullfil with their expectation.

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Since that the amount of motorized boat traffic has increased we need to diversification the wide of the cannals so that it could accommodate more passanger to come with.

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Mantaining the productivities of Gondola and Gondoliers,this way could be done with: a. Repair and do maintain Gondola in low season period so that in the peak time we could decrease the problem of gondolas in the operations time. b. Train the new Gondoliers about the challenges might happen when we drive gondola and sharing the experience by the retired and experienced gondoliers. c. Offer discount in low season period so that the customer more interested to booking gondola with variety price that we do. d. Create a competitive rate advantages of gondolas rate through our distribution channel such as : travel agent, hotels and tour operator. The more we give competitive value of benefit through our partnership such as the distribution channel. We confident enough if they will more promote our the product itself ( such as promote gondola ride ). e. To anticipated the customer who feel boring during queing time , we could use the retired gondoliers who inactive on riding to engange more with the customer and give the brief summary or guide of the city tour that they will doing in the next few minutes.

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Maintaining capacity in high season period : a. Make an event to promote more about gondola and venice such as : encourage the passanger to visit gondoliers production workshop. b. Encourage the customers to booking via reservation online and do booking system. The Impact will emerge from revenue side :

1. Gondola can accommodate more customer , instead of six passanger they can get 12 people with the changes that we did. 2. Increase the revenue for gondoliers and gondola craftsmen 3. Save cost for hiring a new staff and training gondoliers 4. We can get a lot of customer because of the attractive package that we did in low season , so that the revenue can boost to the peak .

5. The brief introduction about gondola and venice city by the retired gondoliers while the customer queing can be the new idea to promote of tourism in venice, the more customer feel attract with the story , it can make a big impact through Word of Mouth that the customer will do in social media or when they back to home town.

2. How can you balance revenue maximization with the maintenance of cultural heritage? Is it possible? If so, what would you recommend? Recall Revenue maximization Maintance Cultural Heritage

Theory Revenue Management, Lovelock & Wirtz, Services Marketing, 7th Edition, Pearson, 2011 Revenue Management is value creation as it ensures better capacity utilization and it reserves capacity for higher-paying segments. It is a sophisticated approach to managing supply and demand under varying degrees of constraint in response to the price sensitivity and needs of different market segments at different times. Revenue Management is most effective when applied to service businesses characterized by : High fixed cost structure and relatively fixed capacity, which result in perishable inventory. Variable and uncertain demand. Varying customer price sensitivity.

Due to the above recall and theory, it is possible to balance the revenue maximization with the maintenance of cultural heritage therefore a well-implemented revenue management strategy must be applied to reconcile yield management practices with customers fairness perception and satisfaction, trust and goodwill for long-term business as mention below :

1. Design Price Schedules and Fences that are Clear, Logical and Fair Firms should proactively spell out all fees and expense clearly in advance. Eg : Inform in advance during the reservation process about the 100% Cancellation Fee if No Show and explain as the firm could not sell the seat to other person as all the booking is already confirm. The above example is common in hospitality to avoid perishabililty in seating availibility due to uncertain demand not only in Gondola business but also in hospitality industry.

2. Use High Published Prices and Frame Fences as Discount Rate fences framed as customer gains (discount) are perceived as fairer than those framed as customer losses (surcharge) even if the situations are economically equivalent. Eg : Apply High Season for Gondola during Summer Holiday, School Holiday,

Weekends ie. with 50% surcharge rather than the Low Season during Weekdays. Furthermore having a high published price also helps to increase the reference price and potentially quality perception in addition to the feeling of being rewarded for the High Season Patronage or varying customer price sensitivity.

3. Communicate Consumer Benefit of Revenue Management Marketing communications should postion revenue management as win-win practice. Providing different price and value balances allow a broader spectrum of customers selfsegment and enjoy the service. It alows each customer to find the price and benefits (value) balance that best satisfies his or her needs. Eg : Charging a higher price for the package with dinner and music in the Gondola recognizes that some people are willing and able to pay more for a better location and makes it possible to sell other seats at a lower price 4. Use Bundling to Hide Discount Bundling a service into a package effectively obscures the discount price.

Eg : Gondola rides package consist of hotel, meals, bus tour and transfer to Gondola area. Gondola package with dinner and music entertainment. The customer knows only the total price, not the cost of individual components. Bundling usually makes price comparisons between between the bundles and its components impossible and thereby side-steps potential unfairness perceptions and reduction in reference prices.

5. Take Care of Loyal Customer Firms should build in strategies for retaining valued customers, even to the extent of not charging the maximum feasible amount on a given transaction. After all, customer perception of price gouging do not build trust. Yield management systems can be programmed to incorporate loyalty multipliers for regular customers, so that the reservations system can give them special treatment status at peak times, even when they are not paying premium rates. Eg : 80% of Gondola riders are booked through operators (travel agent), every agent nowadays are using systems for on-line booking which one of the program called the Guest History in order to maintain the Loyal Customer, usually consist with how many times they visit Venice and what do they like and do not like. In hospitality the Loyal Customer is first priority not only as a repeat buyer, but they might bring new business and as marketing agent to the business.

6. Use Service Recovery to Compensate for Overbooking Many service firms overbook to compensate for anticipated cancellation and no show. Profits increase but so, too, does the incident of being unable to honor reservations. It is important to back up overbooking programs with well-designed service recovery procedures, such as : Give customer a choice between retaining their reservation and receiving compensation. Eg :

Cash compensation or later ride of Gondola. Provide sufficient advance notice that customers are able to make alternative arrangements. Eg : Rescheduling the Gondola ride on the day before or often in combination with cash compensation. If possible, offer a substitute service that delights customers. Eg : Upgrade customer for only enjoying Gondola rides to package Gondola with dinner and music.

Summarize Due to the the explaination above, it is possible to balance the revenue maximization with the maintenance of cultural heritage by applying a well-implemented revenue management strategy. It will impact multipliers effect for long-term business in selling old tradion of Venice or the Gondola rides. It is not only from achieve such a huge income and covering all the cost, but also brings the prospertity to the people in Venice, such as the gondoliers, the ganzeri, the stazi, group leaders, boat construction, also provide jobs and revenue for hat makers and tailors and generate a sizeable amount of souvenir sales. Revenue Management is also concern with the customers perceived until the service recovery as no business without customer that is why the customer need, want and satisfaction must fulfill. 3. Consider the pricing structure of the gondolas. What sort of changes would you recommend? How would customers react? What revenue impact would your recommendations have?

RECALL 1930 gondola prices by the hour and by the trip $0.42 for 50 minutes

1945 gondola trips were based more on the experience rather than actual transportation to a

destination $1 1965 $5 1999 $70 Price of gondola rides is regulated by the city. Day rates: 80 Euros / 40 minutes, max 6

passengers. Night rates (7pm-8am): 20 Euros. Gondolas booked in three ways: Directly with gondolier Through a hotel Through a third-party travel agency Hotel and travel agencies often package the gondola ride with other services, such as a

dinner or music, and take a sizeable commission. 80% gondola business comes from tour operators. Typically, tour operators package

gondola with others. In former case, customers do not know the gondola price because of package. Carovane (caravans) of multiple gondolas (sometimes up to 30) often are used to keep

groups together and increase efficiency. Demand and Revenue. Firm statistics on the number of gondola rides do not exist, but it is

estimated that about one-quarter of all tourists take a gondola ride. In 2004, it was estimated that there were at least 3 million gondola rides. Even with a rate of $20 per person, this is a sizeable business. Gondolas generate income for not only the gondoliers, the ganzeri (usually retired

gondoliers who help with the boats) and group leaders of the stazi but also for the boat construction trade (including the boatyard, the oar markers, the smiths, and the gilders), but also provide jobs and revenue for hat makers and tailors (who supply the traditional gondolier uniform) and generate a sizeable amount od souvenir sales.

Although the demand for gondola rides is extremly high, capacity issues seem to be

constraining the number of rides that can be offered. This, combined with the pressure to maintain some of the tradition associated with the gondolas, make increasing revenue tricky. Still, the revenue provided by the gondola industry is substantial and plays an important role in the venice economy. THEORY Pricing strategy stands on three foundations, which is: Cost-based pricing: establishing the costs of providing service, activity-based costing, and

pricing implications of cost analysis. Value-based pricing: understanding net value, managing the perception of value, reducing

related monetary and nonmonetary costs. Competition-based pricing: non price-related costs of using competing alternatives are

high, personal relationships matter, switching costs are high, time and location specificity reduce choice. Revenue Impact consist a process from revenue management. Revenue management is

important in value creation as it ensures better capacity utilization, and it reserves capacity for higher-paying segments. by: High fixed cost structure and relatively fixed capacity, which result in perishable Revenue management is most effective when applied to service businesses characterized

inventory Variable and uncertain demand Varying customer price sensitivity

ANSWER Based on the case, current price structure only based on some negotiation between gondoliers or it just up to the tours operators, etc. The changes recommend: Firm has to have a good understanding of its costs, the value created for customers, and competitor pricing.

Understanding of its cost

Gondola is parts of service industry, theres no ownership of services in gondola so it would be harder to dermine the financial cost of creating a process or intangible real-time performance for customer. To make a profit, a gondoliers firm must set its price high enough to recover the full costs of producing and marketing the service and add a sufficient margin to yield the desired profit at the predicted sales volume.

Value created for customers

Service pricing strategies such as gondola often are unsuccessful because they lack a clear association between price and value. Value is subjective, and not all customers have the expertise to assess the quality and value they receive. With this fact, the marketers of Gondola must find ways to communicate the time, research, professional expertise, and attention to detail that go into.

Competitor pricing

After seing Gondola price from the perspective of its cost and its value, we should see it from the perspective of competitor. Somehow, when customers see little or no difference between competing offerings, they may just choose what they perceive to be the cheapest. A better strategy for Gondola is to take into account the entire cost to customers of each competitive offering, including all related financial and nonmonetary costs, plus potential switching costs, and then compare this total with that of the provider Gondolas own service. Using Revenue management as a powerful tool that helps to manage demand and to price different segments closer to their value perceptions.

Reserving capacity for High-yield Customers

Revenue management (also known as yield management) involves setting prices according to predicted demand levels among different market segments. The least price sensitive segments is the first to be allocated capacity, paying the highest price, other segments follow at progressively

lower prices. Because higher-paying segments often book closer to the time of actual consumption, firms need a disciplined approach to save capacity for them instead of simply selling on a first-come, first-served basis. This revenue management tool is needed in order to working on Gondola prices. A well-designed revenue management system can predict with reasonable accuracy how many customers will use a given service at a specific time at each of several different price levels.

Price Elasticity

Need to be two or more segments for Gondola revenue management to work effectively that attach different value to the service and have different price elasticities. To allocate and price capacity effectively, the revenue manager needs to determine how sensitive demand is to price and what net revenyes will be generated at different prices for each target segment.

Designing Rate Fences

Inherent in revenue management is the concept of price customization for Gondola that is, charging different customers different prices for what is, in effect, the same product. Customers react: Gondola management must use a pricing strategy (explained in point 1) is a must to address the central issue of what price to charge for a given unit of service at a particular point in time. Service often combine multiple elements, so pricing strategies can be highly creative. Firm need to be careful lest pricing schedules become so complex and hard to compare that they simply confuse customers and can lead to accusations of unethical behavior, loss of trust, and customer dissatisfaction. But if Gondola management successfully created a simple comparable price, then customer satisfaction will be achieved.

The revenue impact from our recommendations would be: The impact of revenue depends on the success of pricing strategy and revenue management tools used by Gondola management. But, the most match pricing strategy and revenue management tool, Gondola management will increase the revenue, having a better management, and at the end gain a high customer satisfaction.

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SOURCES 1. 2. 3. 4. 5. Lovelock & Wirtz, Service Marketing. 7th Edition. Pearson, 2011. http://www.gondolavenezia.it/history_tariffe.asp?Pag=43 http://www.venicewelcome.com/servizi/tour-ing/venicewalktours.htm http://researchnews.osu.edu/archive/venice.htm http://www.gondolaonline.org/03.html

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