Sustainable Tourism Products Distribution: Optimal Pricing and Branding Strategies

Malgorzata OGONOWSKAMalgorzata.Ogonowska@gredeg.cnrs.fr

2 segments of demand co-exist:• demand for ecologically responsible tourism products• demand for traditional products

Considered literature contributions:• sustainable tourism• tourism intermediation & price discrimination strategies

The MODEL

• n heterogeneous agents uniformly distributed on a segment (Hotelling distribution)o m of them are willing to purchase sustainable tourism product according to their utilityfunction:

o (n-m) are interested in traditional tourism products according to their utility function :

• according to the degree of demand heterogeneity the intermediary can develop 3 distributionstrategies:

o commercialisation of traditional tourism products only agents on the marketIntermediary's profits are:

o commercialisation of both types of products and agentson the marketsIntermediary's profits are:

o commercialisation of sustainable tourism products only agents on themarketIntermediary’s profits are:

i indicates the agent’s position on the segment

PS - price of the sustainable tourism product

Pt - price of the traditional product

- quality of sustainable tourism product

- quality of traditional tourism product

g - tourist’s sensibility to environmental concerns

c – sustainable tourism product’s additional cost corresponding to investment in maintaining the ecological quality standards

ISSUE: May these segments be served by the same intermediary and what pricing strategy should it implement in order

to distribute different types of products? Given the demand characteristics should it create separate brands for this purpose?

sustainable tourism: every tourism activity that preserves for a long time the local natural, cultural and social resources, contributing to the well-beingof individuals living in those tourist areas

(Associazione Italiana Turismo Responsabile)

( )Tn P

2

1

( ) ( )

2 2 2

n

iT i Tu P

iS i Su P g

( )( )Tn m P ( )sm P g

( )

2 2 2

2

( )NE E T T T S S S s

n m mP P P P P P gP c

( )sn P g

2 2

3

( )S S S Sn P P P gP c

Profits increase when and n increase

– the sustainable tourism product‘squality is lower then the quality oftraditional one

– the sustainable tourism product isa “high quality” luxurious product;If PS is too high => case 1Profits decrease when c increase andincrease with n, m and g

References:

Budeanu, A. (2005). Impacts and responsibilities for sustainable tourism: a tour operator's perspective. Journal of Cleaner Production 13: 89-

Claude, D. & Zaccour, G. (2009). Investment in Tourism Market and Reputation. Journal of Public Economic Theory 11(5): 797-817

Cracolici, M. F., Cuffaro, M. & Nijkamp, P. Tourism Sustainability and Economic Efficiency - A Statistical Analysis of Italian Provinces. Working Paper

Hotelling, H. (1929). Stability in competition. Economic Journal 39: 40-57

Shen, H. & Zheng, L. (2010) Environmental management and sustainable development in the hotel industry: a case study from China. International Journal of Environment and Sustainable Development 9(1/2/3): 194-206

Stokey, N.L. (1979). Intertemporal Price Discrimination. Quarterly Journal of Economics, August 1979: 355-371

Weaver, D. B. (2005). Comprehensive and Minimalist Dimensions of Ecotourism. Annals of Tourism Research 32(2): 439-455

World Commission on Environment and Development (1987). Our Common Future. Oxford, Oxford University Press.

Zhao, W. & Zheng Y-S. (2000). Optimal Dynamic Pricing for Perishable Assets with Nonhomogeneous Demand. Management Science46(3): 375-388

ANTICIPATED RESULTS

- Optimal distribution, pricing and branding strategy for the intermediary depending on demandheterogeneity;• If demand heterogeneity is low, the intermediary will develop only one brand on one market;• If demand heterogeneity is high, the intermediary will serve both segments of demand and:

o will develop only one brand, if the ecologically conscious consumers do not bother thatthe firm distributes also traditional “polluting” products;o will develop two separate brands in order to serve both segments of demand on two

different markets, if the ecologically aware consumers are very sensible to sustainabilityissues and will not purchase any product from an intermediary who distributes also“polluting” products.

An additional cost will occur for the intermediary corresponding to creation ofnew “ecologically responsible” brand, maintaining its quality and confidentialityof its parent company.

-Implications in terms of social welfare of each distribution strategy; Guidelines for the authorities,administration on the forms of enhancement policies to implement.

Profits increase when n, g and increase; and decrease when c increase