NB: This is a guest article by Jay Sorensen, president of IdeaWorksCompany.
Confession: when looking for a suitable title for a new report, I deliberately chose “shocking” to attract attention to the topic.
I also added a sub-headline – “the ultimate compliment for the consumer acknowledges their right to choose” – that is difficult to dispute, even in a regulatory environment in which debates rage about ancillary fees.
When big changes occur, there is always a tendency to cling to the past. It would be nice to return to the 1960s when travel was glamorous, huge meal trays were used in economy class, and carriers such as Braniff were doing crazy things with flight attendant fashions.
There were a handful of fares in every market and these were likely set by a government regulator. With the exception of selecting economy or first class, travel was a one-size-fits-all experience.
The “all inclusive” price of travel supported all the glamour, food, and fashion. But these higher fares prevented vast numbers of lower income consumers from enjoying the freedom of travel.
Now, the newfound global access to air travel is threatened by ever-increasing fuel costs.
That’s why the magic of a la carte methods arrives at the perfect time. Unbundling allows consumers to choose the level of service that best meets their needs. Of course, this must be delivered in an open and honest manner, and that’s a lesson still sadly lost on some airlines.
It’s not the right choice for everyone. I don’t recommend every airline pursue the complete array of a la carte opportunities. Any process of change should always begin with a thorough review of a carrier’s brand.
Most airlines think they have already addressed this activity, but in my experience most have not. It’s difficult work to create a paragraph that describes how a brand delivers its product promise to a consumer.
But after this is accomplished, every other task becomes far simpler. It’s true, there are airlines that truly should avoid the a la carte approach (especially in premium cabins) . . . and there are those who don’t do enough.
The worst outcome is to create an ancillary revenue strategy based only upon an immediate financial need. Decisions and actions made during times of desperation almost never provide good long term solutions.
When done right, a la carte almost always provides our best solution to keep travel affordable and accessible – for all. Airlines should do what’s right for their brand; but ignore a la carte at your own financial peril.
NB: This is a guest article by Jay Sorensen, president of IdeaWorksCompany. Download the full report.
NB2: Shopping cart image via Shutterstock.
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About Special Nodes
Shocking news: nobody cares for coin-op TVs in hotels (do they still exist?), or for wi-fi fees.
Shocking news: nobody cares to pay for internet usage by the megabyte (think AOL).
These news should not be shocking to a consulting company. A la carte pricing can (and has) been taken too far. A single priced product is simple, has lower marketing and selling costs, and doesn’t alienate people.
And a la carte pricing is proven to hurt you: you simply can’t sell a hamburger as grilled meat for $2, bread for $1, pickles for $0.25, special sauce for $0.25 and so on. In the real world the exact opposite is true: a hamburger is often bundled with fries and a drink into a meal, which has been an enormously popular and profitable offering at fast food restaurants. Car manufacturers not only bundle most items (ever paid an extra for cup holders?), but those features that are of interest to a small segment of buyers are bundled instead of being offered in a confusing a la carte pricing: winter package, sports package, hot weather package, etc.
In the airline industry the pendulum has swung too far towards complexity, confusion, and customer dissatisfaction thanks to people who profit from this trend. The pendulum will swing back: keeping it simple saves money in service delivery and focuses the customer on the experiential value, not on the raw deal he got when he was forced to pay $50 in extra fees for bringing his clothes on vacation. Bag fees have always been bundled into elite membership of a frequent flyer program, and are being bundled into credit card offerings; the trend is clear.
Couldn’t agree more with almost everything you’ve said in your comment. Airlines are clearly run by people who believe that airlines are a special little child of God, with rights and privileges that no other businesses on the planet enjoy — such as the right to zero distribution costs for their products and the right to charge their distributors for selling their products.
There is one bit of your comment that I take exception to:
“In the airline industry the pendulum has swung too far towards complexity, confusion, and customer dissatisfaction thanks to people who profit from this trend.”
If, by “people who profit from this trend”, you mean the airlines, then let’s not forget that the worldwide airline industry has generated an aggregate net profit of roughly zero since the time of Orville and Wilbur Wright.
Interesting Hamburger analogy; apart from the bun and the burger isn’t the rest optional? I have often been in a queue for a burger and people have asked for things to be left out and in my local restaurant they offer extra toppings to their ‘standard burger’, at a price of course. To fly from A to B you don’t need a meal, you can choose your seat on the plane, you have a choice about the amount of baggage etc, you only need the basics. The rest are Optional Services that airlines can charge for and you make the choice based on the value offered.
In my experience (disclosure I work for Datalex) airlines are moving beyond simply stacking the shelves and are looking to engage their customers to sell personalised product offers and bundles that meet their needs. So, I would agree with Hill the focus is moving towards the experiential value.
Airlines are in a unique retail position compared to fast food restaurants, supermarkets etc as they interact with the traveller at so many stages in their journey, they have lots of data about them and their needs. The direct channel enables airlines to engage their customers to offer the most appropriate product and of course, focus on revenue and profitability.