My accountant friend KS
Srinivasan invited me for a quiet dinner at a restaurant to seek my advice. He
described his large ancestral property in Kodaikanal and told me he was
converting it into a resort. Now that his children had left home, he and his
wife wanted to move there permanently from Chennai and run the resort.
“But I have no qualification to
be an hotelier,” he said.
“Nonsense, Srini!” I said. “You
own the property – that’s the most important qualification. And you’re an
accountant, able to count the money as it comes pouring in. That’s all you
need. Hire people for the rest. How many rooms in the resort?”
“30, with half of them air-conditioned.”
“How will you charge for the
rooms?”
“`5,000 per night for AC and `3,000 for non-AC rooms.”
I shook my head gravely. “You
should charge `7,000 for
rooms without air-conditioning.”
“That’s crazy!”
“Crazy pricing is the right
pricing today,” I said. “Say Person A flies from Mumbai to Hong Kong, via Singapore.
Person B takes the same flight, but gets off at Singapore. Who pays more, A or
B?”
“A!” he said immediately. “He’s
flying a much longer distance.”
“Wrong! B pays more because his
flight from Mumbai to Singapore is non-stop, whereas A’s is not! Pricing based
on the logical cost of providing the service is so old hat it smells of mould. Pricing
today is based on perceived value only. The trick is to name your rooms
appropriately. Call the cheaper room ‘normal air-conditioned room’; call the
other ‘premium natural weather room’ and describe it as: ‘Kodaikanal’s natural
beauty and fragrances brought inside your room’.”
