The story of a Chicago prostitute in hit business book Superfreakonomics has inspired TUI Travel to trial a pricing policy to reduce holiday discounting.
The operator recently removed web discounts for two days to see how it affected customers’ buying patterns.
Dermot Blastland, UK and Ireland managing director, said: “Business dropped by 50% but, crucially, that told us that 50% weren’t fazed at all.”
He said the results showed that for half of TUI’s clients, discounts weren’t the driver to book, so there was actually no need to discount prices and thereby reduce profits.
Dermot Blastland, UK and Ireland managing director, said he came up with the idea after reading an article in The Times about prostitution in Chicago headlined ‘Freakonomics returns: vice work if you can get it’.
The article said one prostitute managed to increase her fees by 67% in just a couple of years by identifying clear traits in customers willing to pay more and because her product, like holidays, could not be resold once taken.
TUI is now trialling a system on selected programmes where a smaller online discount is offered, together with a button offering ‘further promotions’.
“The price-conscious, discount-hunters click the button where they can get a few more percentage points off but, for many, they just skip that step, thinking they don’t have a discount voucher code, and pay the first price displayed,” Blastland explained.
He admitted the policy meant the group would inevitably lose volume, but said that would be more than made up for by an increase in the number of holidays sold at a higher price, thereby increasing TUI’s margins.
Blastland told Travel Weekly: “The idea came from an article in The Sunday Times about a prostitute increasing her average earnings by employing a tactic called ‘price discrimination’.”
The article was an extract from the new Superfreakonomics book by economist Steven D Levitt and journalist Stephen J Dubner, whose first Freakonimics book has become a bible of modern economic theory.
“Most firms will profit from price discriminating whenever they can,” the authors wrote.
Blastland explained: “So I thought we’d give it a go: identify those customers for whom a discount is important and not reduce our prices to those for whom it isn’t.”
He said the challenge was for travel agents on the high street to see if they could do the same and help stamp out the UK’s discount culture.
Your views
Your views
I can’t quite comprehend why they haven’t listend to the travel trade in the UK, but a prostitute in Chicago
Nick McKay
The UK’s discount culture was started by the operators and of course clients will expect more if it’s offered to them
addickted to charlton
Join the discussion on TUI’s pricing trial on the travelhub forums