Effect of Reference Price in PWYTF Pricing in Tourism Sector

Abstract

While conventional pricing strategy involves sellers to decide price of a tourism product, tourism companies carry the risk of capacity underutilization in many occasions when fixed costs are already incurred. Pay What You Think Fair (PWYTF) pricing mechanism motivates tourists to pay a fair price for unutilized capacity, thereby, increasing sales and profit for marketers. This study shows that PWYTF pricing mechanism with a concrete reference price of customer can generate significantly higher revenue and profit for a long period of time. We have conducted three experiments to show that PWYTF pricing strategy is a profitable and sustainable pricing solution for tourism companies to increase revenue during off-season as well as underutilization of hired capacity. This study opens a new avenue in pricing methods used in tourism industry and contributes in significant way both in academic and practice.