Part 1: Economic Theory of Price Differentiation and Market Segmentation

Price discrimination

Price discrimination is one of the most important economic theories. In case of price discrimination the seller of any product or services charges different prices to different customers on the basis of various criteria. This economic theory is a part of the monopoly market structure. There are different degrees of price discrimination like first degree, second degree & third degree price discrimination. In case of monopoly market the seller of any product or service determines the price of the product. Therefore on the basis of the needs & requirements of customers the seller set the price. The practice of charging the different price for same product is known as the price discrimination (Sharda & Ponnada, 2008). Different factors play an important role behind the price discrimination & these are the personal, the geographical & basis of use of the factor by the customers. In case of monopoly market the seller of the product demands different prices for same product from different individuals due to personal reasons & the seller also charge different price for same product at different locations.

Degrees of Price Discrimination

In case of the first degree price discrimination the seller sets the price on the basis of the maximum price that customers are willing to pay. Therefore, the surplus derived by customers is zero in case of the first degree price discrimination (Zhu et al., 2012). In case of the second degree price discrimination the monopolist set price of products on the basis of the quantity demanded. In the third degree price discrimination the monopolist divide customers into various groups & charges different price from them.

Market segmentation is another important economic concept. In this process the market is divided into different units & the division is done on the basis of the people who have diffetnt tastes & preferences. It is a marketing strategy & in this case the large market is segmented into small parts & within these small parts the people have more or less similar tastes & preference (Wedel & Kamakura, 2012). These market segments differ from each other on the basis of various factors. These are as follows:

• The seller divides the market on the basis of the gender. Since the choice differs on the basis of the gender, therefore sellers divide the market according to the tastes & preferences of men & women.
• Similarly in case of the age also group the choice of products & services varies significantly from one age group to another. The seller also takes into account this factor at the time of segmenting the market.
• The choice of people also depends on the income of people (Sharda & Ponnada, 2008). Tastes & preferences of product & services of low income group people are different that of high income group. This is also a basis of the market segmentation.

Market segmentation can also be divided into different parts & these have been discussed below:

In case of the geographic segmentation the market is segmented on the basis of the region, the population, the climate of the region.

The market is also segmented on the basis of the demographic factors such as the age, gender, education, income, religion.

Behavioural segmentation

The behavioural segmentation is done on the basis of the usage rate of the product, the brand loyalty of customers.

 

[Source: Wedel & Kamakura, 2012]

The main objective behind the tour was to plan the whole trip in a lowest possible budget & in order to achieve this various aspects have to be taken into account. In planning a tour most crucial factors are the accommodation, the transportation & the food & beverages. In case of accommodations, hotels have to be booked at the lowest rate & similarly in case of transportation the flights have to be booked carefully keeping other factors in to consideration (Australia, 2008). Though the main aim was to book hotels & flights at the minimum price, all these have to be done without affecting the comfort level.

Price Discrimination

The most essential part of the tour is the flight booking. Rest of the things are dependent on the booking of flight. Much research has been done in order to book the most cost effective flight. Tickets were also booked in advance to get more discounts over tickets. With the help of different online portals flights can be booked. The main benefit of this method is that it facilitates customers to compare flight charges of different flights at the same time. The help of the Trip Advisor was taken to compare flight charges & finally to book flights. This website uses the price discrimination on the basis of the demographic factors & services. The total customer base has been segmented in to two different parts (Hall, 2007). As a student since we did not want to avail extra services, we got the discount on the flight fare.

The tour plan was to visit Melbourne via Sydney. In Sydney the student was not aware of the transportation facility & hotels. The help of a travel agent has been taken & the name of the agent is the Expedia.com.au. This provides discount to customers on the basis of the demographic factors. Another important part is the hotel booking & for this purpose the help of trivago.com.au had been taken into account. The Macleay Hotel in Sydney was booked since it provides large discount at the low season. This provides various facilities at a reasonable rate.

Since the student had thorough knowledge of different hotels & transportation system in Melbourne, so it was convenient for the student to handle these in a proper manner. One of the most famous travel agents is the Student Flights. The help of this website has been taken into account. Since this agency provides discount to students below 26 years of age, therefore the student received discount. With the help of this website a 3 star hotel was booked & the name of the hotel is Miami Hotel Melbourne. This hotel provides best quality services at the affordable rate (Stole, 2007). Since the season was low for travellers, hotels charge less from customers due to less demand. As a result the student also received discount from the hotel.  

We had chosen the time period of mid of the year, i.e. the month of June. The mid of the year is the low season in case of travelling within Australia. The cost is low in this season. Since number of tourist in this season is low, therefore the demand in hotels & other tourist spots decline in this period. Hotel charges & fees of visiting other tourist spot also decreases. This makes the cost attached to the whole trip low.

	Charges
Flight to Sydney	$30
Hotel at Sydney (including food)	$40/night* 3=$120
Car charge	$25
Fees at tourist spot	$20
Flight to Melbourne	$50
Hotel at Melbourne (Including food)	$50/night*3= $150
Transportation	$30
Fees at Tourist places	$20
Flight from Melbourne to Home City	$25
Miscellaneous	$60
Total	$530

Methodology of a trip consists of the planning of the whole trip, execution of the trip & finally closing the trip. In the planning stage we made the plan regarding the duration of the tour, the places to visit, to hotels to stay & finally the total budget of the trip. Preparing a plan is one of the most important stages in the whole trip (Anderson et al., 2009). Then we took the help of the internet to get proper knowledge of these places. There are different online tickets booking sites for flight. The help of the Expedia.com.au was taken to do book flights. We compared these sites & finally selected the cheaper one to reduce the budget of trip. Then the next task was to book hotel through online. To book hotels the help of the trivago.com.au was taken selected. After accomplishing all these activities, I compared the actual budget with the planned budget (Zhu et al., 2012). I have found out that the actual budget is little bit higher than the planed one. Then we revised our budget. Finally we started our trip. We visited these places according to our plan. The whole trip was successful & finally we returned back to Sydney. This is the closing part of the whole trip.

The price discrimination can be related with the above mentioned case. Hotels at tourist places charge different prices from customers at different part of the year. In low season hotels charge less price in comparison to prices at the peak periods. Similarly hotels also charge less to those customers who are frequent visitors to the hotel. It also depends on the bargaining power of customers. This is a case of price discrimination.

 If the tour is arranged at other parts of the year, it will increase the hotel charges & fees at the tourist places. This will increase the total budget by nearly $50. Therefore it is profitable to make the plan at the mid months of the year.

References

Sharda, N., & Ponnada, M. (2008). Tourism blog visualizer for better tour planning. Journal of Vacation Marketing, 14(2), 157-167.

Zhu, C., Hu, J. Q., Wang, F., Xu, Y., & Cao, R. (2012). On the tour planning problem. Annals of Operations Research, 192(1), 67-86.

Australia, T. (2008). International Visitors in Australia-December 2007 Quarterly results of the International Visitor Survey. Tourism Research Australia.

Hall, C. M. (2007). Introduction to tourism in Australia: Development, issues and change. Pearson Education Australia.

Stole, L. A. (2007). Price discrimination and competition. Handbook of industrial organization, 3, 2221-2299.

Anderson, E. T., & Dana Jr, J. D. (2009). When is price discrimination profitable?. Management Science, 55(6), 980-989.

Wedel, M., & Kamakura, W. A. (2012). Market segmentation: Conceptual and methodological foundations (Vol. 8). Springer Science & Business Media.