Tourist price sensitivity and the elasticity of demand: The case of BC ferries Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

QUESTION 1

As per the law of demand “price is inversely proportional to quantity of goods being demanded”. It explains that when the price of a good increases, the quantity demanded of that food falls and vice versa. (Law Of Demand)

The percentage change in demand due to the percentage change in the price is known as the concept of price elasticity. Price elasticity measures that how elastic the demand is, in response to the change in price(Graham). In order to calculate the price elasticity we use:

% change in quantity (Q) demanded = price elasticity

% change in price (P)

In 1998, a study was conducted by the tourism management department to determine the price elasticity of ferry transport. The study incorporated a mail survey of 448 mainland residents of British Colombia. The survey was focused on the reaction of the respondent regarding the two transportation price scenario questions that include the expected no. of trips peryear, if the price of ferry increases or decrease by 20%. The survey also included other price sensitive questions related to trip expenses such as accommodation, meals and attractions.

In order to calculate the price elasticity of ferry transport, the author has used the responses of the respondents to calculate the average no. of trips that are expected if the ferry rates fall or increase by 20%. The result stated in the case, indicate that tourists will respond more elastically to the 20% decrease in fare, compared to an increase in the fare by 20%.

The method used to collect data in order to measure the price elasticity was, using mail survey. The mail survey included the responses of 448 mainland B.C residents. The survey conducted didn’t specify that whether the resident chosen for a mail survey had been to the Island or not,as it can majorly affect the response,given by the respondent. The author instead of using mean could have used median, as it is the most suitable measure of central tendency in case of ordinal data. As we examined the figures 1 and 2, it shows that the demand of ferry is competitively elastic in case of 20% increase in the price but not as elastic when the fare of ferry decreases by 20%.

The actual to certain extend estimates the responses, estimated for these types of services because as per the law of demand, the price and quantity demanded are inversely related to each other, though; the percentage of change varies depending upon the nature of the goods.

Tourist price sensitivity and the elasticity of demand The case of BC ferries Harvard Case Solution & Analysis

QUESTION 2

As the results suggest that the local travelers are sensitive to the price change in the fare of ferry and can highly influence the demand. In order to reduce the sensitivity of visitors, the island tourism industry has come up with several strategies. As an immediate response to the situation,the tourism industry has lowered the rates of accommodation. As seen in table 1, a large no. of respondents considered accommodation asgood value for money. So lowering the accommodation rates won’t benefit the tourist industry even in the short run. ...........................

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