Price vs. Value


You don’t have to have been with us long to know we believe that nothing needs to be a commodity if you look at what the customer is buying instead of what you are selling. (If you want to be reminded of this you can read our white paper on Customer Focused Marketing or for a more complete discussion you can get a copy of Mitch Goozé’s book, The Secret To Selling More.)

Readers of our ezine will remember that we often take the airline industry to task for their lack of customer focus. A while back we commented on Jet Blue’s first ever quarterly loss and how they felt that a $5 increase in fares (at that time) would have allowed them to break-even or make a profit. We were stunned they felt they could not command a $5 price premium.

Now we have even more evidence about the airline industry that confounds us. (Since we fly so much, we are probably over-obsessed with airlines, but everyone seems to be able to relate, so we think they are a good example to use.)

Consumer Reports, in their July 2007 issue reported the relative reader scores of the top 18 airlines in the U.S. The highest ranked airline (JetBlue) scored an 87. The lowest ranked airline (U.S. Airways and America West) scored 62. On a 100 point scale this indicates a very significant range of scoring that we would think should translate into an ability to charge higher prices, on average.

However, we did a bit more digging and may have discovered at least one thing that mitigates the ability to charge differently by airline. According to their (Consumer Reports) scoring (based on a 100 point scale), scores above 80 (JetBlue, Midwest and Southwest) indicated “very satisfied” while scores above 60 were fairly well satisfied. Scores around 40 (of which there were none) would indicate dissatisfied.

So, on average the 31,455 people who responded were all at least somewhat satisfied with their airline experiences. If people are on average, somewhat satisfied, then maybe very satisfied is not worth spending more money. Or maybe it is and the better airlines are afraid to test it?

Since the airlines test fare changes all the time, that can’t be the case. Though we have never seen JetBlue, Frontier, or Midwest lead a price increase. Maybe the service leaders need to find out if they no longer have to be price leaders to keep their seats full. If they can’t charge more, then they need to consider whether the “value added” customer service they are providing is really all that valuable.

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