"The disaggregation allows the customers to pay more for what they value"
Published: 09 Oct 2008
By EyeforTravel.com Correspondent, recently in Las Vegas
Airline executives say it has become an accepted part of travel that the disaggregation of the legacy pricing bundling has provided travellers with lower air fares and the freedom to pay for what they want.
There is no question that price transparency has helped the customer, says Stowe Shoemaker, Associate Dean of Research, University of Houston.
"The disaggregation of price bundling has enabled the customer to buy exactly what he or she wants at a price the customer is willing to pay. Consumers have different references prices (the maximum they are filling to pay), which means they value things differently. The disaggregation allows the customers to pay more for what they value (e.g., business class on only one portion of the trip) and nothing for what they don't value (e.g., food.)," said Shoemaker, adding that the key issue to understand is why customers do not buy additional services. Another way to look at this is by understanding the barriers to purchase. For example, consider buying food.
The strong trend toward unbundling demonstrates the growing prevalence of a la carte pricing.
According to Shoemaker, A la carte pricing will continue to be on the rise, as it allows for customers to find "the right price" that will motivate their behaviour.
It also allows airlines to charge for items customers' value and not provide items they do not value.
On enticing or helping consumers to go for add-ons at the time of the initial purchase, Shoemaker said, "Consumer behaviour theory states that once the consumer has agreed to spend money, getting them to spend more money is very easy. For example, consider a flight that costs $250 on a flight. Which option is a consumer more likely to spend extra money? Option (1) pay $270 and get $20 worth of food while on the flight; or option (2), pay $250 and then when on the plane, pay $20 for food. In option #1 consumer is going from $250 to $270. In option #2, the consumer is going from $0 to $20. While it is still $20, option #1 feels better. This rationale suggests the need to get people to purchase add-ons at the time of the initial purchase."
Commenting on how the process of providing the opportunity for ancillary revenue increases overall satisfaction and customer loyalty, Shoemaker said research reveals that if customers are 100 percent satisfied, they are more likely to be loyal to a firm than if they are not 100 percent satisfied. "One component of satisfaction is being able to buy a product or service that takes care of all of the consumers' needs at a price they are willing to pay. The ability to buy only what one wants and needs helps get to the right price."
It is said that more and more of the basic needs of a traveller such as hotels and car rental services are now being covered by the airlines. This makes the customer more loyal because they don't have to search all over the web for information.
"Yes, it is true because consumers want convenience and they want to save time. Consumers often buy all their grocery items at the same store even it would be less expensive for them to go to multiple stores. Consumers do not go to multiple stores because it takes time and time is money. One stop shopping is the future of travel," said Shoemaker.
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