Between mountains and valleys: The art of pricing in ski areas

The key to success: Mutual benefit

Although we are firmly convinced that tickets should preferably be sold via online channels, a deeper trade truth is revealed at ski resort ticket offices: mutual benefit. When a guest buys a ski ticket, they thank the seller — not just out of politeness, but also expresses their genuine appreciation for the purchase. The seller also thanks you because every pass sold not only means turnover, but also confirmation that the ski area creates a coveted value. This mutual respect reflects a fundamental principle of action: a transaction is most successful when both parties feel that their need for value is being met.

The limits of cost-plus pricing

The traditional cost-plus pricing model, in which companies calculate their costs plus a profit premium, is reaching its limits, especially in the dynamic world of ski resorts. This approach ignores one key component:

The value from the customer's point of view. If cost-plus pricing were optimal, corporate bankruptcy, for example, would be almost unimaginable, as customers would always be prepared to pay for the costs of the company. However, reality shows that customers pay for perceived value — a combination of quality, experience and emotional connection that goes far beyond mere production costs.

Frank Frohmann, a recognized expert in pricing, very aptly identifies three key risks of this approach, which are particularly important for ski areas:

1. Loss of efficiency gains: Instead of using the potential of efficiency gains (particularly through personnel deployment), these are often passed on directly to the customer in the cost-plus model. As a result, important nuances in demand are ignored and potential profits are given away.
2. Underestimation of willingness to pay: If the price of a ski ticket is less than what customers are willing to pay, the ski area waives additional margins. Frohmann underlines that the ability to create added value and reflect this in the price is crucial to exploit the full profit potential, particularly in a market where products and services are becoming increasingly similar.
3. Risk of pricing too high: If a ski area sets its prices too high based on excessive cost or margin expectations, it risks losing customers to competitors or from the market because they can no longer afford or do not want to afford them. This results in a loss of market share and/or market volume.

Frohmann's analysis underlines the need for flexible, value-oriented price management, which is particularly well used in ski areas. Such a model takes into account perceived value and dynamically adjusts prices to provide the greatest possible benefit to both customers and operators.

The real driver: benefits and value

A customer's decision to buy a ski ticket is based on the benefits they get from it. Customers measure the value of a ski day by how much it meets their expectations for a unique experience. This perceived value is decisive for pricing in ski resorts for two reasons: First, the perceived value fluctuates considerably on average depending on external factors (such as weather) for the same person and, secondly, a large heterogeneity between the different people can also be identified.

For example, let's look at how the benefits of a skiing experience change based on weather forecasts. It is not surprising to see that the benefits increase significantly on average and statistically significantly with better weather forecasts. At the same time, however, we can also see from the blue-colored area (IQR = 50% of the data) that there are considerable individual differences in the evaluation of the weather forecast between individual guests.

It is also very interesting that the perceived value of an as yet unknown weather forecast is almost as beneficial as skiing in slightly cloudy weather. This fact can be used to make early bookings, as consumers have a very positive expectation and therefore a fairly high benefit when the weather forecast is still unknown.

Neglecting these significant differences in the perception of value when setting prices means that the revenue potential is not exhausted and, as a result, there are opportunity costs. A uniform, static price excludes the opportunity to benefit from early bookings (risk reduction) and increased perceived value under optimal conditions (increase in turnover).

Demand as a result of perceived value

But how can the perceived value be observed and included in setting prices? Demand plays a decisive role here. This is because this can be regarded as a direct indicator of the perceived value. When guests find the value of a ski day high, the demand for tickets increases. This dynamic confirms that perceived value and demand are closely linked. Dynamic pricing recognizes this connection and adjusts prices accordingly to achieve optimal results for both guests and ski areas. In our next blog post, we will take a closer look at the phenomenon of demand.

Conclusion: Pricing must reflect perceived value from a buyer's perspective

Dynamic pricing in the Alps goes beyond simply setting prices. It is a philosophy that recognizes that the true value of a product lies in the eyes of the observer and that demand is a direct result of that perceived value. It is an adaptation to actual market conditions, with the clear aim of creating value for both guests and ski areas.

Stay tuned for the next part of our series, where we'll take a closer look at demand and explore terminology such as the price-sales function and the elasticity of demand. Ready to revolutionize your pricing? Get in touch with us at Pricenow to see how we can help you.

^{Written by Reto Trachsel and Jonas Meuli in collaboration with co-author Veronika Büchi}