Sunday, July 26, 2009

PWYW: A New Pricing Model in Indian Online Travel Industry

What is PWYW?

PWYW, Pay What You Want, is an innovative pricing model in the revenue/yield management arena. In online travel space this model was first used by priceline.com (a leading online travel agent in the US), where it finds a supplier/product (flight, hotel room, etc.) that match customer’s price bid; without naming a provider.

This model allows the customer to purchase a product or service at a price what he thinks is reasonable.

How it is important in Indian context?

One of the key reasons for relatively less penetration of online hotel bookings in the country is psyche of Indian traveler. Behavior of Indian traveler is quite different when he makes purchase of an air ticket and a hotel room night. Unlike purchase of air ticket, Indian traveler always looks for bargain opportunities while purchasing/booking a room night.

How it is beneficial for supplier?

An empty room is a permanent revenue loss for a hotel which can never be recovered. In such cases, something is better than nothing; it is better to sell the room at discounted price than keeping it unoccupied.

A business like hotel, where there is high fixed cost, low marginal cost and perishable nature of the product, if there is additional capacity which is inexpensive to serve, volume gains always increases profitability. For e.g.; For a hotel, costs of receptionist, room service staff, front office staff and support staff remains same irrespective of the volume of room nights sold. In such cases, it is always profitable to increase volume of sales in order to reduce variable cost per available room and to reduce revenue loss from unoccupied rooms.

Moreover, PWYW model also increases customer satisfaction as he perceives transparency and fairness in pricing which in turn generates repeat business.

What if customer quotes zero price?

The most common argument against PWYW model is, what if customer quotes zero price? Researches have shown that in a case where customers are asked to quote their own price for any product (which they actually intend to purchase), they always quote fair and non-zero price.

Who is practicing it in India?

This pricing model is relatively new in the Indian online travel market. Recently two online portals, Bid2Travel and At Your Price have adopted PWYW pricing model. These websites allow travelers to submit their quote/bid for a hotel room or air ticket. Upon submission of bid, website instantly confirms availability of provider matching his bid and consummates the sale.

With increasing competition in the online travel space, marketers need to look at alternate pricing model like PWYW for survival. Not just OTAs, hotels and restaurants can also look at implementing or testing such pricing model.

50 comments:

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