The peak pricing concept seemed like a solid way to boost revenues when Discovery Charters owners Richard and Jeanne Dorr first heard of the strategy at an industry seminar.
Peak pricing can be an effective tool to take advantage of periods of high demand. The pricing strategy has long been used by utility companies, which charge higher rates when demand is the highest.
But the Dorrs delayed giving it a try, worried there would be fallout with their longtime customer base. When they finally made the move, they were pleasantly surprised with the results and response. Over time, they have expanded peak pricing from three to five months.
“Our busiest season is the spring season, with all the school field trips and convention business,” said Jeanne Dorr, the company’s business manager who handles back-end operations.
Richard Dorr said the company’s geographical market gave it some advantage in adding peak pricing. The Northern California carrier is a market leader on the Monterey Peninsula, which is about 60 miles away from the more competitive San Jose/South Bay market that serves Silicon Valley.
Introducing five-percent peak pricing to clients was tough at first. One client, a foundation that provides trips for senior citizens throughout the year, hadn’t budgeted for the increase, so they requested a phased-in increase.
“The first year was a little bit of a give and take and a little meeting in the middle. Since then, it’s been a relatively seamless process,” Jeanne said.
Over time, the Dorrs saw an opportunity to expand the initial three-month peak pricing to include special events during the AT&T Pebble Beach Pro-Am Golf Tournament in February and the U.S. Open in June to reflect the increased demand for their services.
While the local hotels and other business traditionally raise prices when big events come to town, the Dorrs were cautious in their approach.
“It was kind of borderline of what we thought we would be able to get without crossing the line for our clients,” said Richard. “This used to be a huge convention destination down here in Pebble Beach and the Spanish Bay, with companies like HP and IBM doing massive convention work. The hotels pretty much priced themselves out. So we’re cognizant of that. We don’t want our clients to feel like they are getting gouged. We don’t want to get that reputation.”
The business started by his dad Dick Dorr in 1986 has built its success on long-term relationships.
The revenue generated from five months of peak pricing helps cover with costs throughout the year. It can make a big difference for a business that runs on tight margins. “It’s not a huge profit- margin industry, so every little bit that you get helps,” Jeanne said.
Peak pricing doesn’t need to be just seasonal, said Christian Riddell, former executive director of the Motorcoach Marketing Council and the current president of United Bus Technology in McLean, Virginia. A former driver, dispatcher and charter salesperson, Riddell has spent more than a decade helping motor carriers grow and develop their businesses.
Look at demand
Riddell suggested that operators look at demand during the week and raise prices accordingly.
“Many say June through August is my peak time, but if you are sold out Thursday through Sunday, you are giving away money,” said Riddell. “If you give up 30 percent more charter service than you should in an industry with a 10-15 percent margin, you are shortchanging yourself 30 percent. You are giving away money—not operating dollars but bottom-line dollars.”
Just how much to charge? It depends on the market. The trick is to use data to determine what are actual high-demand days, weeks, months, even hours. An operator who sells out every Saturday in the month of March may want to put a “premium” on those days.
Riddell suggested to start peak pricing at a 10 percent increase and see if the hike impacts bookings.
“The market will tell you when you have reached the threshold. I have seen companies who charge upwards of 200 percent of their normal rates during big events and historically busy times,” Riddell said. “Basically it comes down to supply and demand. If you know that you have something and people want it more during certain times, the market will pay more. Simple as that.”
He also recommended taking a peak-pricing approach on vehicles. For example, charge a higher rate for new motorcoaches with more features than older line-route buses.
Riddell encourages the motorcoach industry to look to the airline industry, which is pulling in more than $60 billion annually in ancillary fees, whether for in-flight entertainment, seat upgrades or baggage fees.
Raising rates—even during periods of high demand— is often a challenge for operators, especially in competitive markets.
The secret to putting the strategy in place, said Riddell, is to present it in ways that people want to pay more without demanding they pay more.
“I’m willing to pay for convenience, whether that is checking in my bag so I don’t have to carry it on the plane or upgrading to a bigger seat,” he said.
When to add peak pricing
- During the busiest season
- During the week on days with highest demand
- For new vehicles with more features