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Service vs Price in Shopping.
Timothy O Neil-Dunne ~ T2Impact.com
Saturday, 12th September 2009
 
In a world where hard economic times are abounding - price is sometimes the only metric that makes sense to people. However it assumes that the brand value is known.

In the 1990s (and with no disrespect to the much improved airline of the same name), people used to tell me that the price of an airline ticket was the most important factor.

So my usual retort to this was - if you had to fly from London to Sydney (the kangaroo route) would price be your prime consideration? Your only consideration? In well over 90% of the time people would be inflexible and say that it was naturally the case. So (said I) if Aeroflot saved you 200 pounds and took 3 days would you still do it? That would reduce the pool by - well by about 100%.

On no - said they - safety is the most important thing. The ensuing debate would expose all sorts of criteria and influences that make up the buying decision.

So the service vs price choice is not a simplistic binary question. This has some interesting influences on the decision to choose an airline choice. Everyone assumes that the airline product is simple. The fact that Ryanair and others have made it so is a testament to the stripping away of the unnecessary parts of the product, namely the unbundling. However the issue is straightforward. You don't just travel from airport to airport, you travel from home to destination whether its aunt Mabel's place or the HQ of MegaCorp.

Forester has an excellent panel and it has just published a bit of research on the topic. It divides the consumer into 4 categories:

  • Service Seekers
  • Price Seekers
  • Service and Price Seekers
  • Others.
Across 12 industries Forrester found:

"Service Seekers were more likely than Price Seekers to buy more products, stay with their current provider, and recommend their provider to friends and colleagues. ... It turns out that Service Seekers are excellent customers to target."

Check out the summary here:

www.forrester.com/Research/Document/Excerpt/0,7211,55244,00.html?src=Alert

While I think that this is possible to be true - I shall be a little skeptical. Frankly in a questionnaire people will answer the issue in a way that would tend to favour service. In real life the shopping decision is more complex in particular airlines as I noted above.

At the end of the day - in order to get a sale - you must tick a lot of boxes. The Service must be clear and provided in a consistent manner. (How many airline fail to remember that - indeed how many companies in general forget that). Product expectation must be set realistically and again delivered against. The right context for the customer must be present. (Don't keep calling me Mrs when I told you I am Mr). And don't make too many assumptions about me.

The classic example of this is Southwest. Low expectation was the order of the day and they delivered. However recently the other airlines have matched that low expectation. So the differentiation in the honest and fresh approach taken by Southwest is less than it was before. Not really because WN did anything bad - but because in the market they became like the others.

Interestingly - we just did another test on WN and we find again that their yield per mile (for the basic product) in available seats is still often higher than that of their competition. However for now their ancillary revenue is lower so the net price paid has not risen as fast as the other airlines. Could WN be missing out on revenue?

Universally I believe that most customers have a low opinion of the airline shopping experience online. The time is definitely ripe for a better experience. Then if that service can be delivered online as well as offline - the reward could be a higher price/yield. However - since the airlines have done such a good job at commoditizing themselves - I doubt we shall see that for a while.

So what do you think?

Cheers
Thanks for reading - private comments please to professorsabena@gmail.com

T2Impact is a business development, technology and strategic consulting group focused on helping firms to accelerate their growth either in new geographies or with new products and services. Our name derives from the companys focus; accelerating time and getting from idea to impact quickly for its clients.

We provide a full line of strategic planning services, including marketing plan development, joint venture opportunity evaluation, market and competitive research, process re-engineering, business plan validation and execution.

www.t2impact.blogspot.com
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