1 / 9

Chapter 4.2 Differential Pricing

Chapter 4.2 Differential Pricing. Greg Koch. Objectives. Differential pricing Willingness to Pay Market Segments Goals of Differential Pricing Traditional/ Restrictive Structure Simplified Structure Impacts of Pricing. Differential Pricing. Present a range of f are p roduct options

idra
Download Presentation

Chapter 4.2 Differential Pricing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 4.2 Differential Pricing Greg Koch

  2. Objectives • Differential pricing • Willingness to Pay • Market Segments • Goals of Differential Pricing • Traditional/ Restrictive Structure • Simplified Structure • Impacts of Pricing

  3. Differential Pricing • Present a range of fare product options • Allows consumers to trade off price and restrictions • Products geared towards different market segments • Business travels willing to pay higher prices with no restrictions • Leisure travels willing to deal with restrictions for a cheaper ticket

  4. Willingness To Pay (WTP) • The Maximum Price any number of customers will all pay for a specified product or service. Price P1 P2 Q1 Q2 Quantity

  5. Market Segmentation • Revenue is maximized by charging every customer a different amount exactly equal to their WTP • Identify Different Demand Groups • Not practical to know the WTP for every customer • Instead Customers are split into Segments • Segments have similar characteristics • Trip purpose • Price Sensitivity • Time Sensitivity

  6. Goals of Differential Pricing Maximize Revenue: • Sufficient market segments • Customers pay WTP amount • Airlines get maximum amount from customers • Cheaper products allow people to fly who otherwise would not • Avoid Diversion • Use Service Amenities to attract Segments to paying a higher price • Use Change Fees, Advanced booking, Saturday night Stay to keep customers with a higher WTP from buying cheaper tickets

  7. Traditional/ Restrictive Airline Structure • To Avoid Diversion: • Service Amenities • Seats: First, Business, Economy Class tickets • Separation: Special Check in, Lounges, assigned seats • Restrictions • Advanced Purchase • Saturday night Stay • Cancellation/Change Fees

  8. Simplified Structure • 2001 Dot Com Bust and Economic Recession reduced the willingness of Business Travelers to pay a premium for tickets • Online Ticket Outlets made it easier to comparison shop for cheaper flights • In Response the Airlines moved to Simplified Fares • Fewer Fare levels • Often the Saturday night stay restriction is removed

  9. Impacts of Pricing • Differential Pricing led to great profits in the ‘90s due • Differential pricing theory remains valid and in use today • The Simplified Fare Structure was originally adopted by low cost carriers – increasingly legacy carriers have adopted it to reduce their losses in market share

More Related