Case Study Of American Airlines Pricing Strategy

INTRODUCTION

“The moment you make a mistake in pricing, you 're eating into your reputation or your profits.” - Katharine Paine

The above quote from the founder of KDPaine & Partners LLC and The Delahaye Group is quite apt. Pricing is quite often ignored by executives & leads to people not understanding how it can change the competitive game in an industry.

Most executives believe pricing to be a zero-sum game, i.e. price increase shall lower volume of sales thus in turn hurting the margin gain, but the other way round need not necessarily be true. This problem arises owing to the setting of prices based on cost-plus basis rather than a customer value point of view basis. The methods to capture such value are:

• Better the understanding of

Focusing on pricing and getting heterogeneous departments to operate in sync, companies can deliver anywhere between three-percentage-points to 10 points improvement in EBIDTA. Pricing strategies are constantly changing, even if not recognised by the industry members. Many of them are original and new in nature, while some are borrowed from other industries with modifications to suit the industry in discussion. American Airlines pioneering use of pricing to maximise its fleet’s capacity utilization was significantly instrumental in making it a strong force in the airline industry. This pricing has been borrowed by the fashion industry presently by using yield management to optimize their use of

Such loyalty reward systems act as a motivator for customers to invest in making a continuous relation with the company & creates a pseudo-firewall preventing them to reach out to competitors.

V) Dynamic Pricing

Setting prices closer to the moment when a customer needs a product or service is increasingly possible, but it requires a deep understanding of full and marginal costs and investments, and of the value proposition for the customer.

CURE FOR PRICING MYOPIA

Responses to the below mentioned fundamental questions shall provide the first step to reduce pricing myopia:

i) What is the effect of price fluctuation by 1%, on the bottom line? ii) Which are/are not the price sensitive customer? Why? iii) Which departments & functions control the final pricing decisions? iv) How can pricing be changed to gain an advantage in the industry?

The return on companies developing a globally recognizable pricing capability is very high. Companies recognising this can easily set prices that will maximise revenues & market share along with increasing profits and delivering sustained competitive