Pricing

Is A La Carte Pricing Good For The Customer?

By James Marland
May 23, 2012

A la carte pricing is good for air passengers, says a new report from IdeaWorks, a consultancy, quoted in this Economist article. The report references the well-known trend for unbundling of air travel. As Ben noted in his recent blog entry fliers have plenty of time to consider the merits of bundling and un-bundling. Although this is a well-worn theme, there are certainly things that pricers can learn from airline practice.

In many industries there is a trend for almost every customer to follow the mantra of saying : “We don’t just sell widgets, we offer full widgetry solutions”. This corporate-speak was much lampooned in Private Eye’s Pseuds Corner. But does bundling always make sense? Here’s the view from behind the curtain, in the cheap seats.

Unbundling can allow providers to focus on the core

Several years ago “full-service” providers used to offer magazines on flights. However my choice of periodicals did not align with the “life style” magazines selected by my airline: Golf Monthly, Ebony and Omni, often complete with crumbs and a bit of dried orange peel. Strip out superfluous “adders”: Your customers are more sophisticated and choosy than you can ever cater for.

Bundles mask the price signal

Airlines were able to discover just how much passengers valued the airline food (seen to be close to worthless), but surprisingly would pay significant sums to Fast Track to the front of the queue. Any bundling of products hides the crucial price signal and companies have to then use customer surveys, multivariate analysis and other schemes to recapture the lost intelligence.

Unbundling allows Specialist business to prosper

With the decline of airline food, food offerings in the terminal have become more numerous, and offer picnic-style takeaways that you can grab as you head to the gate. This provides much better customer choice than the unlamented “beef or chicken, your first choice may not be available”.

It would not surprise me if Airlines got out of the baggage handling business completely: you will be directed to a Servisair desk, and your contract will be with them.

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    James Marland

    James Marland is the Director of Business Consulting at Vendavo based in London. In this role he helps diagnose Pricing Opportunities and develops business cases for pricing projects with ROI models. James has been in the pricing software space for many years, both on the customer and supply chain side: so he has a view from “each side of the table”. Prior to his pricing career he was VP of Solutions at Ariba and has also spent 5 years at SAP America. He has a Bachelor of Science degree in Mathematics from the University of Southampton.