Monday, 29 November 2010

Fair pricing and its effect on brand positioning

I'd guess that most of us are relatively happy to pay more to fly on or around a holiday than at other times. I'm sure those who flew home for Thanksgiving or are planning to do so at Christmas did not expect to get the same price as they would for a Wednesday afternoon in October.

Which makes this story (FT, may need subscription) slightly surprising:
India’s government has warned domestic airlines that it intends to crack down on “predatory pricing” after carriers sharply increased fares on popular routes during a recent festival, as overall passenger traffic surges.
Indian travellers were outraged during the recent festival of Diwali – Hinduism’s biggest gift-giving holiday – when some carriers charged about Rs25,000 ($550) for a last-minute Delhi-Bombay round trip ticket, a route on which fares usually range from Rs10,000-Rs15,000.
The price lift here is substantial (60-100%) but reasonably typical of the uplift on flights or train tickets in the UK market.

Is it a sign of a maturing market that suppliers start to charge prices based on supply and demand? Or is it that consumers are starting to accept price variations - with the politicians pandering to the electoral majority, who may not be representative of the market?

In any case, like all suppliers, Indian airlines must keep an ear open to what their customers regard as fair, but need not pay too much attention to the protests of those who are not actually buying the tickets. Perceptions of fairness can shift quickly in consumer markets. However, new brands, services and routes have an advantage over incumbents who have been using a particular model for years. People who have never tried a newly launched airline will have no strong price expectations. While those who have used the same one for years may feel ripped off by a price increase.

The likely outcome of this dynamic is that existing airlines are under more pressure to keep prices low, and will sell out all their tickets quickly. New airlines can charge more, will mop up the excess demand and, as a result of the higher prices, may be perceived as a higher quality service. This will give them a competitive advantage when demand returns to its usual lower level from February onwards.

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