Case study Revenue Management of Gondolas Sheryl Kimes

Gondola in Venice 20million visitors to Venice per year Transportation → tourist attraction The Venice experience # of gondolas has dropped to 400 today Cost of building one boat = 2~30,000 Euros Regulated by the City of Venice: desire to maintain the tradition, but also need the economic impact Balance between tradition and revenue

Gondola rides Demand is extremely high: at least 3 million rides in 2004 (8,219 rides/day) Steered by gondoliers (about 425, must be born in Venice). Available at 8 ferry stations 80 Euros per ride (40 minutes, up to 6 passengers) 100 Euros in night (7pm to 8am) Directly with gondolier, via a hotel, via a tour operator (80%) 35~70 Euros/person when booked via tour operators Package deals with hotel, bus, dinner or music Not easy to board quickly → need assistant

What can be done to increase the capacity of gondolas What can be done to increase the capacity of gondolas? What revenue impact would this have? Define the daily capacity Explain ways to increase capacity Discuss the possibility of increasing revenues and pros/cons for each way

Turnover time between rides # of gondolas # of gondoliers operating hours duration of the ride Turnover time between rides # of people on gondola Capacity 400 425 24 hours 40 minutes 20 minutes?? 6 On the basis of gondola, maximum daily capacity = 400 gondolas X 24 boat rides = 9,600 rides (57,600 passengers) On the basis of gondolier who works 8 hours, maximum daily capacity = 141 gondolas(425gondoliers in 3shifts) X 24 boat rides = 3,400 rides (20,400 passengers)

Different ways to increase capacity Increase # of gondolas How many? Any problems? Increase # of gondoliers Big revenue potential But, entry barrier is very high Decrease the duration of the ride Reducing by 10’ brings 4~5 more rides per day Reduce price? Quality? Get more people on each gondola Putting all 6 people in each boat (even with strangers) Building a new gondola accommodating +6. Cost? Reduce the amount of time between rides Reducing by 5’ brings more rides and increase in revenue But, how?

Consider the pricing structure of the gondolas Consider the pricing structure of the gondolas. What sort of changes would you recommend? How would customers react? What revenue impact would your recommendations have? Discuss the possibility to use revenue management strategies and differential pricing Do you think tourists feel fair when they are asked to pay different prices?

3 necessary conditions are met Differential pricing should work Dual pricing (Italians vs. foreigners) Lower rates for older customers Early bird promotion Price fairness? Change the distributions Heavily rely on tour operators (huge profit margin) Have customers book directly