LESSON FOR FREQUENT FLYERS
It is an understatement to say that I’m a “frequent flyer.” My job requires me to travel across North America almost every week to meet with clients.
With this constant travel comes (at least, for me) a lot of thinking about the airline industry. Recently I was contemplating the variations in airfare. How often have you sat next to someone on a flight that paid 2-3 times what you paid for a ticket? You are both receiving the exact same service – travel from point A to point B – so what gives?
THE PRICE IS (USUALLY) RIGHT
Robert Crandle, the former CEO of American Airlines once said, “If I have 2,000 customers on a given route and 400 different prices, I am obviously short 1,600 prices.” At first glance this sounds like a quote from a greedy airline executive, but it’s just an example of understanding customer value.
The price of an airline ticket is determined by the value each individual traveler associates with that trip.
In almost every situation, no two people would place the same exact value on any given trip. A business traveler that needs to book a last-minute trip will have a higher perceived value on a flight than a family that booked a vacation three months earlier. The family probably has more flexibility and more price sensitivity to the trip. Hence the reason airlines charge higher prices to last-minute travelers.
Here are four major pricing strategies from the airline industry that you can apply to your organization:
1) Match your prices to what your customers value.
If you are currently selling your product/service at one or a few price levels, consider having a broad range of prices to match the broad range of values from your customers.
If necessary, identify variables beyond price to differentiate your groups.
For example, airlines are typically discounting flights on Wednesdays since they see slowest traffic. Adapt this strategy, and consider offering your customers a lower price if they agree to take delivery during your slowest period.
2) Reward your best customers.
An airline’s frequent flyer program is a tool to identify and reward top customers. Once a frequent traveler has access to the perks associated with a specific airline’s frequent flyer program, they are unlikely to change airlines.
My United Airlines frequent flyer status means I get to board the flight first, get upgraded to first class on a regular basis and that my checked bags fly for free. I also have a dedicated phone number with access to United’s best customer service agents. At the end of the day, I’m still traveling from point A to point B with everyone else, but it feels like a different experience. The airlines know that they must reward their best customers.
To adapt this to your business, ask how you are rewarding your best customers.
3) Create up-sell and cross-sell opportunities.
A consumer purchasing an airline ticket online is presented with numerous opportunities to purchase an additional product or service. For instance, you can pay a small fee to purchase a seat with more legroom. For another small fee, you can board the flight early or upgrade to first class.
The airlines have also mastered the cross-sell.
Need a rental car when you land? The airline has a partner that would be happy to take care of that. Need a hotel room? The airline can provide a convenient partner to book your room at a special rate.
For your organization, map out every step of your sales and delivery process to determine if you’re missing any up-sell or cross-sell opportunities.
4) Use strategic partners to offer more.
It’s impractical for most airlines to fly to every destination, but they know their customers need to fly to locations where they may not have a hub. Thus, it’s very common for airlines to “share” routes. You might book your flight to Australia on American Airlines, but the actual carrier that you fly on is Qantas. By packaging these solutions to travelers, airlines can capture more flights and satisfy their customers’ needs.
In your business, analyze your customers’ needs in detail.
What do they really value, and how can you create strategic partnerships to deliver that to them through a broader range of products or services?
So next time you find yourself in an airport, consider what you can learn from the airlines’ pricing strategy that can be applied to your organization. And don’t feel bad if the person next to you paid more money for the same flight. They clearly value the flight more than you.