Airline and Performing Arts Pursue Demand Pricing

As promised, more updates on new airline pricing models: "Frontier debuts new a la carte pricing model":

(Dec 22) "Late last week, Frontier Airlines became the first U.S. airline to unveil a new “menu-pricing” fare structure, in which passengers can choose from among three different pricing levels: Classic Plus, Classic, and Economy. Each ticket level comes with a certain number of amenities—the more you pay, the better services you get."

"...Air Canada has had a similar price structure for years, and other U.S. airlines are rumored to be thinking about moving in this direction, including American Airlines. For Air Canada, menu pricing has not only proven to be a money-maker, it’s also relatively popular among passengers. If passengers are willing to forgo all the extras, they can actually save money on their flight."

Other industries are starting to follow suit, believing this new pricing structure to be a sound profit model. I pointed out the stirring of this pricing in the NFL a few weeks ago. Some college teams seem to be dipping their toes in to test the waters, as well as the performing arts industry: "Performing arts charging more for premium seats":

"Just like airlines, many performing arts venues are beginning to charge more for ticket-holders to stretch out their legs."

"..."Demand pricing" is taking hold, said Alice Kornhauser, marketing director of the Portland Symphony Orchestra. "If people are willing to pay more for an aisle seat, then it's pretty irresponsible from a business standpoint not to charge," Kornhauser said."

"It should not be a surprise that arts organizations use sound business principles to have a more substantial financial foundation," Steller said. After all, other businesses including airlines and hotels have based their pricing on demand for years, she said."

Demand pricing is a very profitable strategy in some industries, although as I pointed out in a recent post, price increases can backfire if not thought through completely. We we keep a close eye on these industries as 2009 progresses, as this trend seems to be spreading quickly.

One of our PPS archive articles, "Pricing In Highly Competitive Markets", has this to say about these types of pricing strategies:

"Unbundle Everything You Can - In a price competitive market place it is important not to offer anything that customers don't value. One way of doing so is by making sure that every element of the product or service is sold individually. This approach lets customers choose which features and benefits they want to pay for and which ones they don't need.

"You gain because you no longer have to provide those features and benefits where they are not warranted and get revenue when they are. Remember - just because your competitor offers these features or benefits doesn't mean they will get the deal. If the customer is truly a price buyer, they will give the business to the company with the lowest price, provided that the minimum standards for quality and service are met."

Even Blockbuster, who has been fighting an uphill battle ever since the on-demand services and tiered pricing strategies introduced by Netflix ripped the carpet out from under them, have moved towards a tiered pricing structure:

"Blockbuster tests new tiered pricing":

"Blockbuster is testing a pricing scheme in the Metroplex that lowers prices for older movies but brings back per-day late charges.

"Under Blockbuster’s "Any Way You Want It" program introduced this month, customers pay a daily or weekly rate to rent DVDs and Blu-ray discs. There’s a charge for each additional day they keep the item without returning it, and there is no grace period before those charges kick in.

"The Dallas-based company hopes that the new pricing structure will make the rental pricing easier to understand and help keep popular movies and new releases available for renters."

More to come - EM

NFL Follows Airline Pricing Examples

The San Francisco Giants will be the first NFL team to employ "dynamic pricing" strategies to increase ticket sales in this down economy. Prices on a certain number of tickets will rise and fall each week based on demand.

The team will employ a pricing software to determine prices right up to the day before the game. See the following articles:

"The San Francisco Giants are taking a page from the airline industry and the theater. This spring, they will be come the first ball club in the country to offer a limited number of tickets with prices based on demand. It's called "dynamic pricing".

With the help of new software, the Giants will become the first team in the nation able to adjust ticket prices for a limited number of seats for walk up sales. Giants' President, Larry Baer, says this could be just the deal you're looking for if you want to see a ball game, but find your funds limited."

"Giants to Try Out Dynamic Pricing"

"Having the ability to adjust prices like airlines do can be an important tool for us in the long run," said Staci Slaughter, the team's senior vice president of communications.

"Alas, the helter-skelter nature of airline-ticket pricing often infuriates customers, as people in adjoining seats might pay vastly different sums for the same flight. The Giants recognize that, which is why the 2009 experiment will cover a small portion of seats in the vast reaches of the upper deck and the back of the bleachers that largely go unsold."

"Giants expand variable pricing: Goal is to capitalize on demand"

How will this plan work out? Will the team be successful in capturing customers who would otherwise be less likely to attend in the current economy? Will the NFL have a better time with customer reactions than the airline industry?

Add your thoughts! Warmly, EM

Airline Pricing: Are Airlines About To Get It Handed To Them ?

After years of being the butt of pricing jokes and the hall of Fame for Revenue Management, I now wonder if the tide is really gone to turn on airlines.

They have increasingly unbundled almost everything as a pro-active strategy. But below is a blog from the travel industry itself that begins to raise real questions about the sageness of this approach - Eric Mitchell

Here is a blog from Senior Travel Blog
By Nancy Parode, About.com Guide to Senior Travel

Unbundling Airfares - Good Value or Money Grab?
Monday October 6, 2008

"The Associated Press reported today that American Airlines is giving serious thought to "unbundling" airfares. This pricing strategy involves charging all passengers a base fee and adding options or groups of options for an additional charge."

"American Airlines' approach to fare unbundling seems to be based on the Air Canada model, rather than the more extreme, charge-you-for-everything Ryanair system. Air Canada offers four fare levels, with different options and privileges included at each level. Options include meal vouchers, priority boarding and baggage handling and reduced change fees.

What do you think? Would you prefer this "unbundled" pricing approach, or would you rather pay one price and have access to all the "options"? Take our poll and share your opinion."

And another perspective from MSNBC: "American Airlines plans à la carte pricing"

Carrier to offer bare-bones services at base fees, charge for add-on items.

"American Airlines is about to accelerate the trend of breaking the cost of a trip into an airfare plus many smaller fees.

Starting next year, American, which led a stampede by U.S. carriers to charge customers for checking even a single suitcase, plans to imitate the a la carte pricing structure pioneered by Air Canada, airline officials say. There are likely to be a few basic fare plans, and travelers can pick additional services — for a fee.

Fans of "unbundling," as it’s called, say it gives travelers lower base fares with the option of paying for extras that they really want, from beverages to blankets.

Some travelers are wary, however, and suspect the airlines are just trying to chisel them a few bucks at a time."

Thoughts?