Pay what you want for flights, hotels, cruises and car-hire?
In these days of over capacity in almost any market you care to mention, except maybe bankruptcy administrators and liquidators, it could be time for a new pricing model to be applied. In the travel industry, the owners of inventory face the challenge that they can’t stockpile the product. When the 10:15 flight to Tenerife departs, every empty seat is zero revenue, zero ancillary revenue and zero chance of a repeat customer. Worse – it could be extra revenue and customer ownership by one of your competitors.
Over at the Big Apple Times, they are reporting on an real life trial of a pricing model called ” Pay what you want ” in which a team of researchers studied the affect of offering the price promotion at three different businesses – a cinema, a deli and a Chinese buffet – near Frankfurt, Germany. For some products consumers actually paid more than the previous prices, and in the case of the Chinese buffet average price fell but the increase in custom made up for it.
You can read the executive summary of the report here, I have also copied some of the conclusions below :
“Overall, the results of the experiments indicate that PWYW might be suitable as a price promotion tool and may also help improve the seller’s credibility by letting the consumers decide about the prices of products. Implementing PWYW, the seller can demonstrate to consumers that he or she believes in the quality of the products because lower prices can compensate for lower quality without signaling low quality by lower posted prices. The application is also simple and easy to communicate to consumers. This may increase the chance of word of mouth and build up a positive pricing image among consumers. However, PWYW poses a risk that the price buyers pay will be much lower than the seller’s cost or even equal to zero. Especially for high-priced products, PWYW does not seem to be an appropriate pricing mechanism, because the incentives to realize a large deal profit may outweigh aspects of fairness. In such a situation, revenues will probably suffer if the seller cannot set a minimum price threshold.
In the three field studies of this article, a personal interaction between seller and buyer exists and potentially supports the applicability of PWYW. Further research should analyze the importance of such personal interactions on consumers’ decision process. Furthermore, PWYW might be a profitable alternative to free samples for new product introductions or money-back guarantees. “
If airlines adopted the scheme on certain routes on certain days ( e.g. Tuesdays ) they would at least attract good PR, and if the flying crew deliver a great product then the revenue might just surprise the bean counters too. Some airlines are already giving away flights in various ways, so how about this – 10 seats on the worst flights given away on a PWYW basis. .
Who will be first to give it a go ?
Possibly Related posts ? :
No airlines are doing this yet (only a matter of time, as you say the PR value is high) but one hotel is offering this since the third of Feb. Look at http://paywhatyouwant.com.sg
This is an interesting idea and challenges the traditional approaches used by Revenue Managers. Please see http://polls.linkedin.com/p/21373/xrdyi for info on what types of things are challenging Revenue Managers in these hard economic times.
Thanks for your comments and the tip off about the hotel in Singapore doing pay what you want.
I have done a quick post about this
http://affiliate4travel.co.uk/2009/02/pay-what-you-want-hotels.html
Just waiting for the first airline to exploit the marketing and innovation value of this.