Monday, March 1, 2010

Optional-Product Pricing

Optional-product pricing is defined in the textbook as “the pricing of optional or accessory products along with a main product” (272). This pricing method allows companies to present a low base price that is capable of attracting customers while maintaining the possibility of generating high customer revenues by selling costly add-ons later.

Optional-product pricing is a technique that it becoming increasingly popular in the airline industry. In the past, most airlines have charged higher ticket prices that they do now, but these ticket prices provided the customer with more than just a small seat and transportation from one airport to another. Among other things, airlines have historically allowed their flyers to check a limited number of bags free of charge and provided customers with free in-flight snacks. Increasingly, however, airlines have changed their strategy. Now tickets are generally priced fairly low most airlines charge customers separately for virtually anything beyond the ticket. Most airlines now charge for snacks, the use of headphones, checking kennels for pets, reserving a window or isle seat, checking bags, and many other things. These fees are not trivial either. Airlines generally charge around $25 to $35 to check each bag and, in 2008, the major airlines made about $1.1 billion on baggage fees alone (http://www.cbsnews.com/stories/2009/06/08/travel/main5071069.shtml).

This strategy may have been successful at generating revenue for the airline industry, but it has also resulted in a considerable backlash among consumers. As the following video demonstrates, many consumers see the use of an excessive number of fees as a way to squeeze additional cash from them and are actively fighting to avoid fees when possible.



Scott Hardy, Section E

1 comment: