Strategic Marketing Approaches within Airline Management: How the Passenger Market causes the Business Concepts of Full Service Network Carriers, Low Cost Carriers, Regional Carriers and Leisure Carriers to overlap

Text Sample:

Chapter 2, Strategic Airline Marketing:

2.2.2, Price Policy:

The price policy covers all decisions that have to be made on the fare that is charged for the final product. This includes, for example, decisions on discounts as well as on payment and delivery conditions in accordance with the overall marketing strategy of the company.
In most cases price policy aims to maximize the profit. However, there is a range of other objectives that companies try to achieve nowadays. These comprise objectives regarding the company itself, such as an increased cost recovery, full employment or a stable position in the market, and objectives regarding the position in the market in general, such as the winning of new market segments and new customers, or the creation of a certain image.
The price policy offers a wide range of strategies and instruments to find the right price for the offered products. However, not all of them can be used at any time to the same degree for any product or service due to different characteristics. This also applies for airlines. Their products consist of typical service characteristics. They are, for example, not storable and the production and the consumption take place at the same time, which means that the core product expires after the production, which in this case is the flight. The price building process of airlines therefore is very complex and depends on many factors, such as the point-of-sale, the target group, the season, etc. However, to keep it simple, it can be said that in general the price policy process can be divided into two phases. The pricing process, which indicates the fare levels for each product, and the revenue management, which states how many seats are to be sold at every level. Since this paper looks at the status quo of airlines business concepts and ist effect on the customers only, it will not consider dynamic pricing strategies and the revenue management process in detail. Furthermore, it will not take into account, whether prices are based on the costs, the competition, or the value.
The pricing process of airlines can be divided into two main stages. First of all a price level has to be set. It has to be decided whether prices are supposed to be on a low, a medium or a high level. The low price strategy is also known as promotion price strategy. It is usually used to sell a simple product with a few added services only. This strategy usually does not need much promotion since the low prices are promoting the product themselves. The high price strategy, in comparison, also known as premium price strategy, requires more promotion. This strategy is mainly used for selling more complex products, which include the core product as well as a range of augmented products. All price levels in between are known as medium price strategies. Some authors argue that airlines mainly apply the two major strategies; the premium price strategy or the promotion price strategy. However, today such a strict separation is nearly impossible since the price levels vary just as the products of the airlines do. There are prices available at a low, a medium and a high price level as well.
Additionally, the 'No Frills Concept', also known as the 'A La Carte Pricing', has become more important recently. It allows the airline to sell the core product (the flight from A to B) separately and to achieve additional revenues by selling further services. These revenues are called ancillary revenues.
Once a decision on the price level is made, a price differentiation takes place. This means that the same product is offered for different prices at the same time. Through price differentiation, the pricing process can get very complex depending on the overall business concept of the airline. Price differentiation is done in order to skim the highest possible consumer's surplus. However, the willingness to pay varies from target group to target group depending on different factors. Thus, a differentiation within the passenger airline industry is usually done related to the flight schedule, the location where the flight is purchased, the customer status (student, business traveler, leisure traveler, etc.), and the quantity of flights purchased.
2.2.3,Place Policy:

The place policy covers all decisions that have to be made regarding the distribution of the products from the producer to the final customer or the intermediary. Thus, the word 'place' can also be replaced by the word 'distribution'.
In the context of the place policy an entire distribution system is designed, whereas the final design depends on a number of different factors against the background of the objectives and the concept of the business. These are, for example, the availability to the customers, the height of the costs, the controllability as well as the adaptability of the distribution channel and the achieved yield by each product sold.
The design process can be divided into two steps. First of all, decisions have to be made on the vertical structure. It has to be decided whether products are supposed to be sold directly to the final customer, or whether one or several intermediaries are supposed to be in between (indirect distribution). In the case of indirect distribution, further decisions have to be made on the number of intermediaries, on the kind of intermediaries, and on contractually conditions if necessary.
Secondly, decisions need to be made on the horizontal structure of the distribution channel, which includes decisions on the width of each step (intensive, selective and exclusive market concentration) and the depth of each step of the distribution channel (type of business).
Airlines use different ways to sell their products to their customers. Direct distribution mainly happens via websites, call centers, ticket offices at airports and cities as well as via selling points for employees. On the other hand, indirect distribution mainly takes place via travel agencies (online and offline), tour operators, and consolidators.
Global Distribution Systems play a major role for airlines. These are computer based reservation systems, which combine products and services of different service providers, such as airlines, hotels, and car rentals. They are operated independently and on a worldwide basis. These systems enable the user to compare the products offered by different suppliers and to purchase them easily. Yet, they make the distribution of tickets easy, they also make them more expensive, since the airlines have to pay fees in order to use them.