Tuesday, July 08, 2008

Airline Pricing Idiocy: A Model for Other Businesses?

Two travel news sources we regularly read, Joe Sharkey At Large and Aviation Insight & Perspectives, are frequently railing against the “follow-the-herd-without-the-real-facts” media and/or academic reports about the travel industry that are usually written by folks with little or no (it often seems) travel or business experience.

In the July 7, 2008 Wall St. Journal is an article titled “What E-Tailers Can Learn From Airline Pricing.” The short answer should be a resounding “Nothing,” but the five (yes, five) academic authors suggest internet retailers adopt demand-management pricing strategies.

We’ve done marketing and business consulting for a variety of businesses both large and small, and can’t imagine giving a client advice to adopt the worst pricing/business model we’ve ever encountered – the airlines’ model.

We know travel a little, we know airline operations even less, and we know marketing and customer behavior pretty well. That said, everything we ever encounter (from a consumer’s standpoint) about airline pricing boils down to this: The airlines are saying to us, 1) our product (an airline ticket) has so little real value that we can jack around with the price until you can’t see straight; 2) we’re doing everything we can to game our pricing, so you, Mr. & Mrs. Consumer, might as well try to game us right back; 3) we think we’re building your customer loyalty with “elite” levels and frequent-flyer miles, while actually we’re devaluing our own currency and annoying our best customers in the process; 4) our business model is so flawed that even we don’t really know what anything costs, so we’ll pull prices out of the sand and hope for the best and see what works; 5) my competitor next door sells widgets for xx dollars, so even if we did try to differentiate ourselves with a better product, you, Mr. & Mrs. Consumer, aren’t smart enough to see the difference so we’ll price our product at xx dollars also, and then complain about losing money because we didn’t know how to run our business.

This just makes us tired and we want to jump in the car and drive somewhere, even with gas at $5 per gallon.