Diversion and fairness perception in innovative pricing models. Empirical evidence from the alpine skiing industry

Globalization and increasing competition have forced businesses to introduce new and innovative pricing tactics. Variable pricing, often referred to as price differentiation, is an example of such innovative tactics. This pricing approach can assume various forms and manifestations, and its success depends on customers' acceptance and reactions. This thesis studies different forms of time-based price differentiation models and possible customer reactions when such pricing practices are introduced. Variable pricing to utilize available capacity was previously mainly used by sectors such as airlines, hotels, cruise lines, and car rental firms. It has now expanded to diverse areas such as restaurants, cinemas, golf clubs, amusement parks, and ski resorts. The purpose of the thesis is twofold. First, it contributes to the pricing and optimization literature on time-based price differentiation in service industries by introducing new tractable modeling frameworks, considering diversion effects at various price levels and capacity constraints. Second, it contributes with new knowledge about customers' emotions and reactions to time-based price differentiation schemes. The empirical evidence is drawn from the alpine skiing industry, which usually experiences large variations in demand during a season. Since the alpine skiing industry is capital-intensive, it has low variable costs and high fixed costs. Consequently, high capacity utilization is crucial for ski resorts, and they can address this through time-based price differentiation. The findings of the appended research articles reveal that ski resorts need to consider both the diversion effect and the capacity constraints when setting optimal prices. The magnitude of the price differences across various sub-periods also affects the perception of fairness among skiers and impacts behavioral intentions. However, the framing of the price differences can moderate these effects. The findings have practical implications for managers in service industries in general and in ski resorts in particular, which are discussed in this thesis. The thesis also presents several ideas for future research within the relevant topic areas.Globalisering og økt konkurranse har tvunget fram nye og innovative former for prissetting blant bedrifter. Variabel prising, ofte omtalt som prisdifferensiering er et eksempel på en slik tilnærming. Dette kan anta ulike former og uttrykk, og hvor vellykket en slik tilnærming er avhenger av kundenes aksept og hvordan de reagerer på prisforskjellene. I avhandlingen studeres dette ved ulike former for tidsavhengige prisdifferensieringsmodeller. Bruken av variabel prising for å bedre kapasitetsutnyttelsen har tiltatt blant bedrifter, særlig i tjenesteytende næringer. Tidligere ble denne formen for prising først og fremst brukt i bransjer som flyselskaper, hoteller, cruiseselskaper og bilutleiefirmaer, men har i de senere årene spredt seg til nye bransjer som restauranter, kinoer, fornøyelsesparker og golf- og skianlegg. Formålet med avhandlingen er todelt. For det første skal den bidra inn i prisoptimerings-litteraturen ved å introdusere tidsavhengige modeller for prisdifferensiering som tar hensyn til både etterspørselsskift ved ulike prisnivåer, og kapasitetsbegrensninger. For det andre skal den bidra med ny kunnskap om kundenes følelser og reaksjoner på tidsavhengig prisdifferensiering. Empirien er hentet fra alpinbransjen. Dette er en bransje som vanligvis opplever store variasjoner i etterspørselen i løpet av en sesong. Den er kapitalintensiv, med lave variable kostnader og høye faste kostnader. Følgelig er høy kapasitetsutnyttelse viktig, og tidsavhengig prisdifferensiering er et virkemiddel for å oppnå dette. Funnene i de vedlagte forskningsartiklene viser at skianleggene bør ta hensyn til både etterspørselsskift og kapasitetsbegrensninger når de setter prisene. Størrelsen på prisforskjellene mellom de ulike tidsperiodene påvirker også oppfatningen av rettferdighet blant skikjørerne og deres reaksjonsmønster. Bedriftens presentasjon av prisforskjellene kan imidlertid ha en modererende effekt. Funnene har praktiske implikasjoner for ledere i tjenesteytende næringer generelt og i skianlegg spesielt, noe som diskuteres i avhandlingen. I tillegg presenterer avhandlingen flere ideer til fremtidig forskning innenfor de aktuelle temaene.publishedVersio

Optimal Early-Bird Discounts and the Challenges of Diversion

Variable pricing and early-bird discounts can shift some demandor the time of purchase from higher-priced periods to lower-priced periods without increasing the total demand. This diversioneffect influences optimal price levels, and the present paperpresents a model for calculating optimal early-bird discountswhen incorporating diversion. The model also reveals the differences in price elasticities and the feasible price interval for positiveprofit. The paper contributes to the literature on early-bird pricingstrategies and offers practical insights for service providers seek-ing to optimize their pricing strategies. The empirical relevance isdocumented using survey and real-life experimental data amongskiers at a major ski resort in Norway. The main insights of thepaper are that the profit-maximizing discounts and the gapbetween the optimal price with and without diversion increasewith the length of the pre-booking period.Optimal Early-Bird Discounts and the Challenges of DiversionacceptedVersio

The effects of price framing and magnitude of price differences on perceived fairness when switching from static to variable pricing

The long-term success of variable pricing relies on existing and new customers accepting the pricing scheme implemented. We use experimental data from the alpine skiing industry to examine how the magnitude of price differences and price framing affect perceived fairness in cases of intra-weekly price differentiations and early- bird discounts. The results show that both the price framing and the magnitude of the price differences between the high- and low-price scenarios have strong effects on perceived fairness. Framing the price difference as either a loss or a gain has an asymmetrical effect on perceived fairness. Increasing the price difference between the high- and low-price alternatives has a negative impact on perceived fairness, but the effect differs across framing (gain or loss) and for various early-bird horizons.The effects of price framing and magnitude of price differences on perceived fairness when switching from static to variable pricingpublishedVersio

Willingness to pay for “green skiing”

In this note we provide preliminary empirical evidence on Norwegian alpine skiers’ willingness-to-pay for season pass attributes that make alpine skiing more sustainable. We focus on two key attributes; (1) compensating for the CO2 emissions associated with the activity by purchasing CO2 quotas and (2) compulsory use of public transportation to/from the ski resort. The results show that there is a substantial interest in season passes that includes CO2 compensation. However, combining season passes with compulsory use of public transportation (ski bus) does not seem to be attractive to Norwegian alpine skiers/snowboarders. The optimal prices of the two alternatives are approximately 11.5% higher (CO2 version) and 25% lower (ski bus version) when compared to are gular season pass.publishedVersio

Price differentiation in the alpine skiing industry-The challenges of demand shifting and capacity constraints under pandemics

The implementation of variable pricing at ski resorts can shift demand from peak periods to off-peak periods if at least some skiers have the flexibility and willingness to do so. This is often referred to as diversion, or demand shifting, and can directly affect the profit-maximizing prices ski resorts should set for their tickets. In this paper, we first model how diversion is related to various levels of the intra-weekly price differences at a ski resort. Then we use this model to recalculate the optimal variable prices a ski resort should set when accounting for the demand shifting and capacity constraints. The results show that the optimal prices the ski resort should set are influenced by both diversion and capacity constraints. The latter aspect is particularly relevant in the ongoing global pandemic. Ski resort managers can make direct use of our modelling framework and results when implementing new pricing strategies.publishedVersio

Sustainable Consumption of Services: Willingness-to-Pay for Sustainable Alpine Skiing Experience

In this study, we examine sustainable consumption from a ski area perspective by using the exploratory sequential mixed-method approach

Managing structural constraints in recreational alpine skiing: a choice modelling approach

© 2022 Informa UK Limited, trading as Taylor & Francis Group. Dette er en akseptert versjon av en artikkel fra Managing Sport and Leisure. Den publiserte artikkelen finnes her: https://doi.org/10.1080/23750472.2021.2020679/ This is the accepted version of an article published by Managing Sport and Leisure. The full article can be found here: https://doi.org/10.1080/23750472.2021.2020679The alpine skiing industry faces a decline in the number of new active skiers, dropouts of the existing active skiers, and a decline in overall participation frequency. Structural leisure constraints can be considered as a form of managerial failure preventing customers from participating in leisure activities. The purpose of this study is to use choice modelling to examine how the marginal willingness to pay for various leisure constraining factors differ and to provide empirical evidence of how pricing could be used as a negotiation instrument to overcome structural leisure constraints. The rationale behind the choice modelling approach is that a respondent chooses from a set of hypothetical scenarios of a product or service that includes various combinations of attribute levels. The findings emphasize that skiing preferences and marginal willingness to pay vary among less frequent, frequent, and very frequent skiers. Price differentiation can be used as an instrument to limit the influence of constraints and help individuals overcome the structural leisure constraints. The study provides valuable implications for practitioners based on an understanding of the price’s impact on individuals’ choices.acceptedVersio

Willingness to pay for sustainability – the interplay between voluntary actions and forced choices

The study examines the willingness to pay (WTP) for sustainability among alpine skiers by contrasting voluntary actions, like CO2 compensation, with mandatory measures, such as required public transportation. Key findings include: Positive WTP for Voluntary Sustainability Measures: Offering a climate-neutral season pass that offsets CO2 emissions led to a higher WTP. On average, skiers were willing to pay an additional 108 NOK for this option. Negative WTP for Compulsory Measures: Conversely, requiring skiers to use public transportation (a "ski bus") to access the resort significantly reduced WTP. Skiers were, on average, willing to pay 1,298 NOK less for a season pass under these conditions, indicating a preference for maintaining personal convenience and flexibility. Demographic Influence: Younger skiers showed higher WTP for both sustainability initiatives, while older skiers tended to value flexibility over enforced eco-friendly options. Travel Time Effect: The time taken to reach a resort affected the perceived utility of CO2 compensation positively but had a diminishing effect on the utility of compulsory transportation, especially when public transport took considerably longer than driving. These findings suggest that customers in this context prefer sustainability initiatives that allow choice rather than those that restrict freedom. This preference for voluntary action over mandatory measures has implications for designing sustainable offerings in ways that align with customer values

Folkehelse og levekår i Oppland: Resultater fra folkehelseundersøkelsen 2018

Østlandsforskning har i 2018/19 gjennomført en stor folkehelse- og levekårsundersøkelse i Oppland. Sist det ble gjennomført en tilsvarende undersøkelse i fylket var i 2013/14. Bakgrunnen for undersøkelsen i 2018/19 er at Oppland fylkeskommune ønsker å få oppdatert kunnskap om hvordan det er å leve og bo i Oppland. Av alle opplendinger over 18 år ble det trukket et representativt utvalg på 24 000 personer som ble invitert til å bidra i en spørreundersøkelse. 6 000 av de spurte valgte å delta, det vil si en responsrate på 25 prosent

Folkehelse og levekår i Oppland: Resultater fra folkehelseundersøkelsen 2018

Østlandsforskning har i 2018/19 gjennomført en stor folkehelse- og levekårsundersøkelse i Oppland. Sist det ble gjennomført en tilsvarende undersøkelse i fylket var i 2013/14. Bakgrunnen for undersøkelsen i 2018/19 er at Oppland fylkeskommune ønsker å få oppdatert kunnskap om hvordan det er å leve og bo i Oppland. Av alle opplendinger over 18 år ble det trukket et representativt utvalg på 24 000 personer som ble invitert til å bidra i en spørreundersøkelse. 6 000 av de spurte valgte å delta, det vil si en responsrate på 25 prosent