Pricing Strategy in Online Travel

Industry
Group 9
Prashant Mishra (M-18) || Roshni Gajbhiye (M173-18) || Pradnya Salve (M174-18) || Kaustubh
Sawant (M178-18) || Siddharth Sharma (M-18)
 Breakup of XYZ Limited revenue

Introduction
About Company XYZ Limited
• XYZ Limited is an Indian origin online travel company started in
the year 2000 by Mr. Deep Kalra initially catering to the Indian
oversees customers who needed to travel from the USA to India.
• Today their product and services are divided into four segments:
Travel tickets booking, Dolphin watching booking, Holiday
packages, and others.
• They generate 64.1% of their revenue from hotel booking and Products & Services in XYZ
packages, 26.8% from air tickets booking and 9% from the other online platform
segment.
• Some of the other competitors in this sector are yatra,
cleartrip.com, goibibo, booking.com
 Problem statement
• Mr. A, the Chief Business Officer of XYZ Ltd and alumni of IIM Ranchi,
wants to maximise XYZs revenue during the winter months in Goa.
• His senior, Mr. K, the Chief Operating Officer, recalls the pricing strategy
concepts and tells Mr. A that XYZ should focus more on pricing the
Activities Product in Others segment.
• They team up with their fellow college mates and data analytics heads,
Mr. B and Mr. C. They know that Price bundling works well with
negatively correlated consumer valuation of products, but it fairs poorly
when customer valuation for products are positively correlated.
• The team conducts surveys and interviews about the various activities
they do when they visit goa and how much are they willing to pay for it.
• So they have collected willingness to pay of 200 persons for the
following activities– Bike Rental, Dolphin watching, Dudhsagar falls ,
Sunset Yacht Dinner, Paragliding.
 The pricing dilemma
At the end of their meeting, the team are left with 3 unanswered question

Should they keep single pricing or differential

pricing for the chosen activities section?

Should they do bundling of activities to maximize

revenue?

How many bundles would be most effective for

maximizing revenue?
Price Segmentation problem
• In a location like Goa, tourists like to do multiple activities. Some of them include
cruises, buffets, dolphin watching, water sports at beach like Scuba Diving, Paragliding,
etc.
• Mr. Aman wanted to select any five activities and decide between the pricing strategy of
single pricing or dual pricing.
• The five main activities are Bike Rental, Dolphin watching, Dudhsagar falls , Sunset
Yacht Dinner and Paragliding.
• With the help of data consisting customers willingness to pay, we do single pricing as
well as dual pricing for all the five activities and see where we get maximum revenue.
SINGLE PRICING STRATEGY
One Price for both buyers and
sellers
Contrasts with Dual pricing
where there is one price for
seller and a higher price for
buyers
When a firm has some market
power and consumers are not
willing to pay the same for
every unit, the firm can price–
discriminate to increase the
profits.
Single pricing
• We have data of 200 persons willingness to pay for five activities like Bike Rental, Dolphin watching,
Dudhsagar falls , Sunset Yacht Dinner and Paragliding.
• We identify consumer surplus for all five activities by pricing each activity with a single price.
• We then identify which activities are possibly purchased by each person and generate revenue for each of
them.

• Objective:
• Maximize total revenue from five activities
• Decision Variables: P1, P2, P3, P4, P5
• Constraints:
• All prices have same value
• All the prices for 5 activities should be between zero and maximum willingness to pay of all
the customers
• P1 = P2 = P3 = P4 =P5 = P
• P<= Max(Willingness to Pay of all the activities); P>= 0
 Dual Pricing In some cases, dual pricing is
necessary to offset the additional
costs of doing business in a
foreign market.

Dual pricing is most often an

aggressive tactic used by a
manufacturer to take market
share away from a competitor.
Dual pricing is illegal only when
it can be proved that a
manufacturer set prices
unrealistically low for the
purpose of unfairly driving out
competition.
Dual pricing
• Objective function
• Maximize total revenue
• P1  High Price ; P2  Low Price
• Decision Variables: P1, P2
• Constraints:
• Highest price should be in a range of Rs 700 to Rs 1000
• Lowest price should be in a range of Rs 500 to Rs 900
• Activity prices should be either 1 or 2
• P1>=700 ; P1<=1000
• P2>=500 ; P2<=900
Price Bundling
• Price bundling is combining several products or services into a single
comprehensive package for an all-inclusive reduced price.
• Despite the fact that the items are sold for discounted prices, it can increase
profits because it promotes the purchase of more than one item
• Eg : Microsoft Office a bundle of Word, Excel, Access and Outlook
• Objective: Improve revenues significantly
Price Bundling problem
• Objective:
• Max Total Revenue

• Decision Variables: B1, B2, B3, …. , B31

• Constraints:
• Constraint 1 – Price of all individual activity decision variable should be upto Rs 1000
1) B1, B2, B3, B4, B5 >=0
2) B1, B2, B3, B4, B5 <=1000
• Constraint 2 - Price of all the activities decision variable should be upto Rs 15000
1) B1, B2, B3, …., B31 >=0
2) B1, B2, B3, ….., B31 <=17000
• Price of Bike Rental should be less than the bundled combinations. Similarly, price of Dolphin watching, Dudhsagar
falls, Paragliding and Sunset Yacht Dinner should be less than the bundled combinations
 Conclusion
Activity\Pricing Single Pricing Dual Pricing Bundling
Max Revenue 655647.80 659078 774416.24

1) In Single Pricing, pricing of all five activities is P = Rs 776

2) In Dual Pricing we have two price that is high price & low price
1) High Price – Rs 826; activities like Paragliding, Dudhsagar falls are
charged at this price
2) Low Price – Rs 776; activities like Bike Rental, Dolphin watching and
Sunset Yacht are charged at this price
3) In Price bundling, we get the highest maximum revenue

Mr. A should use price bundling for the activities as they provide higher
revenue as compared to others
Thank You