Short Term Revenues at the
Price of Long Term Loyalty
By Lior Arussy
like to congratulate all the customers of Northwest Airlines who
loudly raised their voices. The
airline announced cancellation of their plan to charge a premium price
of $15 for exit row seats. The
short lived plan apparently received such loud objections from
customers to the point that the airline was forced to cave in.
To those customers who believed that their opinion could make a
difference, congratulations. Your
voice did make a difference and stopped another stupid plan to milk
customers for one more dollar.
fair, the practice was not invented by Northwest.
Airlines are masters of now charging for what they once
provided gratis as part of their service. Meals now cost an average of
$5-$7 on flights. Snacks
will be the next frontier from which they attempt to maximize revenues
from customers. Few
airlines still honor the basic value of the flying experience.
During a recent experience in making an airline reservation my
wife discovered that the low rate she obtained came with a price: no
advance assigned seating. This
condition was not disclosed to her during the reservation process.
hearing this, my creative juices went into overdrive and I came up
with some additional ideas for the airlines:
Preferred access to the toilets – with vouchers
going for $8 per usage
Premium toilet paper in the toilets – at a cost
of $3.50 per roll
Clean blanket for $15 – and you get to keep it
for future flights
Guaranteed no seating next to babies (all four
directions) - $25 per trip
5% discount on the cost of your ticket for helping
the crew distribute meals (limited participation per flight, so
get your request in early)
If you manage to actually sleep more than 15
minutes – you need to pay a premium for the privilege (TBD based
on the amount of time you actually sleep)
If you sit next to an empty seat, you will be
charged 50% of the full fare of that seat (what a deal!)
If the attendants smile at you sincerely, you will
be charged $5 per smile
working on my list, I found an amazing article on CNN that topped all
my ideas. The article was
titled “Airbus denies standing room seats”.
It described a secret Airbus plan to offer a standing
room only “seats” in their new A380 planes.
Those standing seats allow them to pack even more passengers in
the already huge aircraft. According
to the report, the standing room option allows passengers to be
propped against a padded backboard held in place with a harness.
How comfortable that must be!
What’s next? Travel
in the cargo area fetus style?
airlines will argue that they are forced to take these measures
because of the intense price reductions forced on them by customers.
They may cite Ryanair, the European discount airline, as an
example of using these types of practices.
However, this is an incorrect comparison.
Ryanair sells all seats at low costs and does not apply the
traditional discriminatory pricing methods, such as higher costs for
last minute reservations. The
airlines are notorious for charging different prices based on time
sensitivity related to the reservations process.
It is common for a business traveler who paid $800 for his
ticket to sit next to a leisure traveler who paid $150 for the same
exact privilege to travel. When
it comes to pricing, the airlines have excelled at differentiating
between their customers. But
when it comes to service and delightful experiences, they deliver a
lousy one size fit all – to all.
They treat all customers the same way, in accordance with what
they believe is the value of the lowest paying passengers.
the airlines will argue that such moves increase their profitability,
they fail to answer the simple questions: how much do such moves cost
them in loyalty? What is
the real price of these short term revenue spikes?
How much do they cost the airlines in erosion of customer
loyalty? The responses of the Northwest customers demonstrate that
such petty moves aggravate customers.
This irritation will quickly translate into a costly
depreciation in loyalty. There
is a price to be paid by the airlines for all these attempts to charge
for what used to be free. Instead
of the airlines charging for basic services, they would do better by
creating amazing experiences and then charging for those innovative
services. How about an
electric massage in the seats? I am convinced that people would pay
for that service to address typical flight discomfort.
This would be an innovative service perceived by customers as
additional service which will command the extra fee.
What about special customized meals for a fee?
I would like to order a Wolfgang Puck pizza on my flight.
I would be happy to place my order and pay an extra $15 for the
privilege. When the
service is customized to my taste and I select it, I will pay more.
There is no shortage of ideas.
There is shortage of willingness and creativity on the airlines
part to do it.
existing services that were originally provided as integral part of
your value proposition and making up new prices for them is dead
wrong. It is not going to
save the airlines anything in the long run, despite the initial spike
in revenues. Airlines will
pay for this temporary spike with long term loyalty depreciation and
further price pressure from customers.
Customers demand lower price, when they do not see the value
they receive for their money. If
airlines continue to reduce the value and charge for every pillow,
they will only accelerate the own commoditization and therefore the
customers’ price pressure. Irritating
customers simply results in a reciprocal response.
The choice is rather simple: respect your customers, delight
them and enjoy their loyalty or stay in the downward spiraling cost
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