This is marketing clase MANAULTVIENT DECISION CASE: orice Unbundling: An Uncommo
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This is marketing clase
MANAULTVIENT DECISION CASE: orice Unbundling: An Uncommon Word Leading to Very Nice Financial Returns until 2008, when a person bought an airline ticket, willing to pay to sit in that row? Some airlines are price of the ticket included all kinds of nice ser- ning to charge people an extra fee for ces Back in the "dark ages" (that is, pre-2008), that air- e ticket would have included the ability to check a the front of the plane designated by names such as exit row seat but also large blocks of other seats near ag and, depending on the length of the flight, it may "main cabin extra" —extra meaning a few extra inches have included any or all of the following: a meal, head- of legroom. If you are not checking a bag to avoid the phones, the ability to store a carry-on in the overhead "checked bag fee" which really kicked off the whole bin, and as much legroom as everyone else who had unbundling phenomenon, how confident are you that not forked over the cost of a first-class or business-class you can find a space in the overhead bin? Many airlines ticket. However, nowadays airlines have discovered the recognize that the overhead bin space is a piece of joys of "unbundling." This practice, which is leading to real estate that can be rented for a fee. However, since some hefty extra fees for travelers, is generating reve- "overhead bin charges" or "carry-on bag charges" are nue for airlines to the tune of $27.1 billion in the most not fully accepted by most air travel customers (yet), recent period with data available. That number rep- airlines have to get creative in how they will monetize resents a huge increase of nearly 20 percent over the that space. Thus, "priority boarding" is invented for an fee revenue generated by airlines the previous year. extra fee. Yes, you can now pay an extra fee for priority In a competitive environment in which airlines were boarding that virtually guarantees your bag space in faced with high operating costs, intense competition, the overhead bin. Elect not to pay the fee and you run and a customer base that can compare prices instantly the risk of the bins being full when you board the plane on the many online travel sites, something had to be and having to check your bag at the cabin door. done that allowed airlines to increase their revenue Priority boarding and premium seat location fees Streams. That "something," airline executives decided, are just two of the many fees airlines are now chargina. was to unbundle many of the services customers Others include reservation change fees, overweight expected with the purchase of an airline ticket from the and oversize bag fees, in-flight meal fees, "stand-by flier" fees, Internet access fees, and 50-percent-more- price of the fare itself. Think of the many services and nice-to-hav ervices and nice-to-haves that frequent-flier-miles fees, to name a few. All of these EXISt when one travels via air to a particular destination fees have proven crucial to airlines realizing on you are tall and would like the extra legroom that an income in the past few years. In fact, in 2012 Smergency exit row may provide, how much are you enue per passenger exceeded costs by Manage Pricing Decisions CHAPTER 10 317Explanation / Answer
Q1. The strategies used by airlines today are similiar - they have started unbundling extra services that used to be included along with the price of a ticket earlier. During earlier days, what used to happen was if a passenger bought a ticket, it typically used to include allowance for check-in baggage, and probably even a meal. However, today, airlines have realised that by unbundling these services, that is, by simply offering a passenger just the base fare for the ticket, they can sell the extra services to passengers who need them while they board the aircraft. By doing this, they firstly generate more footfalls as the ticket prices become cheaper. Secondly, the tendency of a passenger to purchase on impulse becomes far higher when he realises that options are available to make his/her travel more comfortable. This is the kind of strategy that the low cost carriers use today.
Who knows, in future they might charge you for using WiFi on board, or perhaps even for using the toilets!
Q2. I think SouthWest might not follow the pack. Check In baggage, if well defined with weight limits, can be a very usefull pull mechanism to get customers as it is a great convenience for travellers. If airline carriers can know in advance roughly what payload they are going to get, which they currently know since they fix an upper limit on the weight of baggage that a passenger can carry, they can better plan the flight's economics/fuel consumption. In my opinion, the current practice of not charging customers extra for check in baggage allows them to have an edge over the competition
Q3. For hotels, I can suggest a few. Hotels could probably start off by removing room service, or probably by including it for an additional fee. Most of us use a hotel room just to sleep for the night - the guests are mostly outside attending meetings or roaming around the city for the entire day. It does not make sense to have staff on standby just for attending to rooms. In my opinion, this should be unbundled and made optional - if you want room service, pay a nominal charge and use it!
I have given you some key points for all the questions. I hope you will be able to think of similar unbundled charges for cruise liners/restaurants.
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