Should we have been careful about what we asked for when our country pushed airline deregulation through Congress a generation ago? Deregulation and transparent information from the internet have driven prices in many industries like airlines to very low levels. Competitors know that once the flight leaves, the value of the remaining seats falls to zero, so they’re willing to aggressively discount the last available seats. Companies in this situation often skate the thin ice of low margins.
What to do? Implement yield management pricing in your reservation system, and hang on through the ensuing consolidation until the sophistication of your computers systems and those of your competitors allows you to collectively regain the advantage on your customers through price signals. The added upside of yield management pricing is a “capture” of customers for a time-bound period. You can sell additional products and services “in flight” at better margins than you received in the first stage of the sale. If you’ve been on an airplane recently, you’ve probably noticed that everything from what you eat, drink, and watch to the degree your seat reclines is for sale; the airlines know you can’t get off the plane until the flight is over. The trick is to avoid pushing these strategies so hard that we feel held captive at a disadvantage, causing us to refuse these offers and lowering the chance we’ll repeat the experience. In an extreme situation, you may have been gouged for a necessary product or service like gasoline, and vowed vengeance on the supplier for his “dark-side” behavior.
What if suppliers looked at captive situations as opportunities to cement life-long loyalty by reacting in the exact opposite way – by doubling down on customer service? A gas station owner in New Jersey named Richie Dodd earned customers for life after Hurricane Sandy by pumping gas for them with a 1948 hand pump while keeping prices level. How do you plan for and train your teams to respond this way? What’s best for your business?
There are a lot of other categories where suppliers and customers find themselves in this situation. Any time they choose to fly to a destination resort, go to a casino, open a “free” checking account, or even step into a retail store, customers play this two-step tango. Businesses can optimize between adding revenue and delivering a “good-enough” customer experience, even using “Big Data” to model the trade-offs. But as David Brooks points out in his current column, it’s also a chance to model your business values in a way that will outlast today’s transaction. There’s no one right answer to pricing in industries where the customers want you to stay in business as long as they get the best deal on their ticket to ride.