Airline Fares First Off, I Am Compelled

Airline Fares

First off, I am compelled to suggest a caveat. There have been times when my dry cleaning bill has exceeded the cost of my ticket to fly. I have been singularly struck with the inappropriateness of that disparity. Airfare has become commoditized -- travelers expect an extraordinary service and convenience for a small price. Consider the cost to travel a distance equal to that attained in a flight by any other means of travel, including meal and lodging costs -- airfare is remarkably inexpensive. All things considered, there are amazing bargains to be had in airfare, such that, tacking on a, say, $50 each way for two checked bags seems a small price to pay.

That said, my position is that airlines should continue to charge for baggage -- both checked and carry on. Different pricing schedules should apply to baggage, depending on where the baggage will be carried in flight, and depending on size and weight within those two categories. Frequent fliers can join mileage clubs that offer free check-in baggage or free first checked bags -- and neither of these offers are restricted to full-fare travel, although they may be restricted to certain levels in the mileage club.

I certainly don't feel that all airline passengers should subsidize access to services for every eventual combination that may or may not be utilized. This practice works for property tax but not for purchasing services. When I check into a hotel, say one in the Starwood line, I pay for the type of room that I will be staying in. And though I may be able to use the business center and the exercise room, I might not be staying on a floor that has access to the envied "Club Room" where I can receive free breakfast, newspapers, and be served by wait staff. To be sure, at a Holiday Inn Express, I get a continental breakfast at no charge. But be assured, the two experiences are vastly different. The point here is that I get what I pay for and my expectations match what is provided.

As Warren Buffet suggests, you need to get in the field to evaluate the value of a company. Here is one scenario: When I flight British Air out of London, unless I have come on a connecting flight from another country, I cannot check a second bag. Period. And what I can carry on is very strictly limited. British is a premium airlines and has largely stayed out of the checked / carry-on fray. On the other end of the scale, I have on two occasions flown Ryan Air. I will not again. On a return trip from a vacation across several climates (which translates into more clothing, more luggage), the extensive menu of charges that Ryan Air cheekily presented and the prospect of not being able to board the plane -- at all -- with luggage that did not meet the exacting and changing requirements was so stressful and irritating, that I paid an additional $200 to fly the return leg on British Air.

1. Explain the pricing strategies that firms use.

Penetration pricing strategy is intended to maximize the quantity of purchases made by pricing low. An opposite tactic is to use a skim pricing strategy which is designed to set the price high in order to sell to consumers who are not particularly price sensitive -- in essence, skimming off the cream. Cost-plus pricing seeks a certain level of profit margin and sets the price just beyond production costs to achieve that level. Target return pricing seeks a return on investment, and sets the price according. Value-based pricing seeks to price according to customer perceptions of value with respect to alternative, competing products or services. Psychological pricing is based on consumer perceptions of fairness, signaling of product quality, and pricing points that are popular, and so are familiar to consumers.

2. Explain what factors are involved in the development of a pricing strategy.

Pricing variables can be categorized by product attributes, production factors, micro-economic factors, and price characteristics. Product attributes would include considerations such as whether the product is a luxury or a commodity, whether it is a new product or a staple, if it can be well differentiated or positioned. Micro-economic factors include barriers to entry, maturity of company, rate of product diffusion, and product life-cycle. Production variables include the company's resources for advertising and marketing, and production, plus economies of scale. Pricing variables include the possible price elasticity of market demand, changes to the demand curve and costs.