Behavioural pricing opportunities in tourism destinations: a collaborative approach

Abstract

This paper proposes collaborative behavioural pricing strategies to attract additional demand and revenue to a tourism destination. Unlike previous work, it emphasises opportunities to cooperate across tourism-linked businesses not owned by the same entity. Prospect theory (Kahneman and Tversky, 1979) suggests that every spending decision creates disutility to a consumer, but that the marginal disutility of consumption decreases as the expenditure increases. Thus cross-business packages offered in a destination can lead to two types of benefits. First, they increase total visitor expenditure even when additional discounts are offered. Second, with pre-purchase of in-destination services, visitors face fewer spending decisions on arrival, and the resulting reduction in disutility increases their willingness to commit to additional spending. The proposed framework temporally divides visitor spending behaviour before and during the visit to analyse the potential benefits of collaboration. The model is illustrated by a numerical example and future research avenues for testing the framework are outlined.