Kiru, a loyal reader sent a lengthy email email describing a unique price segmentation execution. His entire email is below, but the gist is that there is huge demand for an accommodation near a Hindu temple near Chennai India. The rooms sell out in 4-5 hours after becoming available. And yet, the pricing goes like this:
- First two days, $10 per day
- Third day, $20 for the day
- Fourth day, $40 for the day
Kiru summarized: “I see this is really good strategy adopted by them to satisfy all category of people by giving rest house to most of people, manage demand of rooms and get more revenue through this price segmentation. But I feel 100% price increase on each day is not good idea. What do you think about this?”
There is more than value based pricing and price segmentation going on here.
True this is price segmentation. Only people who can afford to stay longer will stay longer, so they are getting those people to pay more.
However, this does not really feel like value based pricing to me. Let’s define value based pricing as charging what your customer is willing to pay. Since the rooms sell out extremely quickly, the facility could easily raise prices on the first and second days and people would still pay it.
This seems to be at least partially an altruistic strategy, holding the price intentionally low so more people can visit the temple.
If you believe that, then raising the price dramatically for more than two days makes a lot of sense because they are trying to get people to leave, so more people can visit the temple.
I’d be curious to know if the accommodation is in any way related to the temple. Maybe the owner is Hindu and wants more people to be able to visit the temple.
If this was a profit maximizing venture, they would surely raise their prices until just a few rooms went unused. Then they might segment based on number of nights by giving discounts for longer stays to incentivize people to stay longer.
What can you learn from this? We don’t always price to maximize profit. Sometimes we price to be good community stewards. I once met a pricing guy from Chick-fil-A who told me they could raise prices and be more profitable but they don’t, because they consider themselves contributing members of society.
What drives your pricing?
This is kiru, I am big fan of your articles on pricing, I regularly follow your blog, and I read your book IMPACT PRICING, which really helps me to be current. It is great effort by you towards enlightening people on this specific area.
I am writing this mail to share a price segmentation which got my attention recently in a temple rest house for pilgrims in India.
Recently I visited Thirupathi, it is Hindhu temple located near chennai India. This temple is one of the richest temples in the world in terms of donations received. On average monthly 3 Million pilgrims visit this temple.
Hence to facilitate accommodation for pilgrims devasthanam itself providing rest houses on reservation basis (approximately 3000 rooms with all amenities, where 4 persons can stay in a room). Room reservations open 60 days advance and booking will be exhausted within 4-5 Hrs. This implies how this service has demand among people.
Devasthanam management smartly handle this high demand and facilitate rooms for most of people by price segmentation. Where they segmented the room rent based on hours pilgrims stay.
- Up to 24 hrs stay they charge 600 INR ($10).
- 25-48 hrs stay charge 600 INR ($10)
- Crossing 48 hrs stay they charge 1200 INR($20)
- Crossing 72 hrs stay they charge 2400 INR ($40)
So if pilgrim stays 3 days he has to pay INR 2400 (600+600+1200).
In general within 24 hrs time pilgrims can able to get Dharshan. But if pilgrims want to see more services offered to lord on different days. then those pilgrims need to extend their stay duration, where this price segmentation helps to increase pilgrims willing ness to pay for their accommodation.
I see this is really good strategy adopted by them to satisfy all category of people by giving rest house to most of people, manage demand of rooms and get more revenue through this price segmentation.
But I feel 100% price increase on each day is not good idea. What do you think about this.
I appreciate if you would like to use this for your blog…
Happy learning with you.
Regards Kirubakaran (kiru)