There has been a significant shift in the global airline industry due to the emergence of low-cost carriers. Easy-jet, an English and European low-cost carrier, has achieved impressive success in short-haul flights. With the increasing demand for air travel, there is a growing prevalence of affordable flights. As a result, extensive research is being conducted on pricing strategies to take advantage of potential improvements.
There are various approaches to flight scheduling for carriers. Examining this matter can assist managers in comprehending how the pricing strategies of low-cost airlines may differ from those of traditional ones, enabling them to align their objectives for optimum performance. “Price” is one of the “four AS” in marketing mix, but it plays a distinct role compared to “promotion”, “product”, and “place”.
By examining the contrast between a low cost carrier and a standard one, and the differing priorities they have, this task will aid in comprehending how the prices of low cost airlines can be compared to those of standard ones. This knowledge can guide them towards achieving their goals in the most effective manner. Moreover, it will allow us to observe the current level of significance that “price” holds in the world of business, and how it is adaptably applied in practical and complex business environments. Pricing is one component of the marketing mix, which encompasses the actions undertaken by an organization to facilitate commercial exchanges.
There are four important marketing activities that are commonly referred to as the four elements of the marketing mix. These elements are Product, which involves designing, naming, and packaging goods and/or services that meet customer needs; Distribution, which focuses on efforts to make the product available at desired times and locations for customers; Promotion, which involves communicating about the product and/or the producing organization; and Pricing, which determines what customers must provide in exchange for the product. However, pricing stands out as differing from the other three elements in a significant way.
Product activities involve designing and packaging the good or service, distribution aims to get the product to the customer, and promotion revolves around communicating the product’s existence and benefits to customers and potential customers. All three marketing activities contribute to the value offered by the product, which is defined as the benefits and satisfactions it provides to customers. However, pricing does not directly focus on creating value.
Pricing in the marketing mix is a vital task that captures the value produced by other marketing activities. Unlike other elements, pricing brings in revenue for the organization while others contribute to variable costs. It is crucial to determine the price at an optimal level as setting it too high or low can result in decreased sales. Therefore, the purpose of price within the marketing mix is to establish a pricing strategy that effectively appeals to the target market.
When considering this matter, various elements should be considered. These elements encompass the product’s price, existing discounts, market segmentation, and financing alternatives. An essential aspect in establishing the price is comprehending the target market’s willingness to pay. Additionally, production costs and competitors’ pricing tactics must be taken into account. Conducting extensive research within the target market is indispensable for formulating an efficient pricing strategy as a component of a company’s marketing mix. This research becomes even more vital when dealing with distinctive or notably dissimilar products or services as determining customer willingness to pay can be challenging.
According to theory, there are seven types of pricing strategies that organizations can employ. These include Penetration Pricing, where a low price is initially set to boost sales and market share. Another strategy is Skimming Pricing, where the organization begins with a high price and gradually reduces it to reach a larger audience. Competition Pricing involves setting prices based on competitors in the market.
There are several options for pricing that a firm can consider. They have the choice to price lower, price the same, or price higher. Another strategy they can use is product line pricing, which involves setting different prices for products within the same range. Bundle pricing is another option where a group of products is offered at a discounted price, often seen in promotions like “buy one and get one free.” Psychological pricing takes into consideration the psychology of price and how it is positioned in the market. Lastly, pricing can be set to reflect the exclusivity of a product.
Optional Pricing: The company provides supplementary products that can be bought alongside the primary product to boost sales. In essence, a product with its distinct identity would probably have a brand name, and to amplify the brand’s reputation, it would need an appropriate pricing strategy. Easy-jet, which is a subsidiary of the Easy Group conglomerate, was established in 1995. Subsequently, it has observed substantial expansion driven by strong demand from both the United Kingdom and continental Europe.
Easy-Jet, a European airline, has adopted its business model from United States carrier Southwest Airlines. However, Easy-Jet has made some adjustments to cater to the European market. These adjustments include implementing more cost-cutting measures like not offering connecting flights or complimentary snacks on board. The main components of this business model consist of maximizing aircraft usage, minimizing turnaround times, generating extra income through add-ons (such as priority boarding, checked luggage, and food), and keeping operating costs low. The graph below illustrates the price differences when buying Easy-Jet tickets at different times.
The data regarding the time of booking and flight collection was gathered on November 27th. The chosen route for this analysis is London Alton – Amsterdam. All prices for flights are quoted as one-way fares, with a constant price prevailing at any given moment. Typically, prices are lower during the initial stages and progressively increase as the departure date approaches. Both the policies and empirical findings of this study demonstrate that Easy-jet employs three clear strategies: Firstly, it does not provide last-minute deals. Additionally, Easy-jet operates with a single class configuration, and utilizes price as the primary factor influencing demand.
The duration of ticket sales varies, which is different from traditional airline pricing strategies. Unlike most airlines that offer last-minute deals, either directly or through resellers, the current practice is to control demand by allocating seats to different classes instead of offering only one class and letting price determine demand. In reality, last-minute deals are often available at significantly discounted prices.
The section reveals that either the policy is not optimal or it presents a time inconsistency problem for consumers. If the time inconsistency problem is resolved, such as through the introduction of information asymmetry, it is evident that this policy is appropriate for firms with high capacity. Essentially, Easy-jet is displaying optimal behavior by gradually raising prices, and will continue to do so as long as it maintains its status as a small airline. However, this policy may become suboptimal once it no longer remains small and efficient.
Comparison of pricing policies between Easy-jet and British Airway. The two charts above depict the pricing policies for determining the outbound price and return price of both airlines: Easy-jet and British Airway. It is evident from these charts that there are similarities in their pricing policies for both outbound and return prices. During the first week of sales, both airlines offer discounted tickets for their full aircraft capacity, with flexibility in flight times. The ticket price reaches its lowest point when travelers book three months in advance.
Both Easiest and British Airways have different policies regarding pricing for their available seats. Easiest offers the lowest prices within three weeks of the flight’s sale release, with prices increasing as the departure date approaches. The last few seats are sold at very high prices, resulting in pure profit for the airline. In contrast, British Airways follows an opposite approach by keeping most of their available seats priced at a fixed rate until around 10 days before departure. After that, the price gradually decreases until the day of the flight.
From a different perspective, British Airways consistently has higher prices than Easyjet in every aspect. The reason for this is that British Airways is not considered a low-cost airline like Easyjet. Unlike Easyjet, British Airways includes food and other services in the ticket price. This is appealing to customers who prioritize comfort and wish to have a more enjoyable flying experience. British Airways places emphasis on providing convenient services and ensuring customer satisfaction. In conclusion, our analysis has provided valuable insights into the pricing strategy of one of Rupee’s most successful low-cost, short-haul airlines.
Easy-jet’s pricing scheme, which begins with low prices and gradually raises them, is considered the best strategy for leveraging differences in customer price sensitivity, given its current position in the European market. However, if Easy-jet were to expand and become a bigger company, this approach might no longer be ideal. This presents a dilemma for the airline regarding whether to maintain its current size and attractive value offering or to grow and introduce a new value proposition that the market may not immediately embrace.
