In deducing the impact of price changes on sales, it is imperative to consider the various price strategies. For instance, if a decrease in price could increase sales, then decreasing the price may be a smart business move. At this point, an effective pricing strategy becomes useful.
Price, in providing services, is one of the ways through which buyers’ choices are influenced. They determine the patronage of different products and services, and the knowledge of the price that one could charge to boost profits is key to beating the competition. For the sake of clarity, a pricing strategy refers to the processes companies use to price their products or services.
Almost every company providing essential services, be it, large or small, base the price of their products and services on factors such as production, labor, and advertising expenses, and from this, add on a fixed percentage so they can make a profit from the purchase. This makes one wonder about the united Airlines pricing strategy. Yet, there must be an insight into the various pricing strategies.
Penetration Pricing Strategy
A small company that uses penetration pricing usually places a low price for its product or service with the hope of building market share, which is the percentage of sales a company has in the market versus total sales. The primary objective of penetration pricing is to garner many customers with low prices and then use various marketing strategies to retain them.
Price Skimming Strategy
Another type of pricing strategy is price skimming, in which a company sets its prices high to recover expenditures for product production and advertising. The objective of a price skimming strategy is to achieve profit quickly. Companies often use price skimming when they lack financial resources to produce products in volume. Instead, the company will use the quick shots of cash to finance surplus product production and advertising.
Product Life Cycle Pricing
All products have a life span, called the product life cycle. A product gradually progresses through different stages in the cycle: introduction, growth, maturity, and decline stages. During the growth stage, when sales are booming, a small company will usually keep prices higher. For example, if the company's product is unique or of higher quality than competitive products, customers will likely pay a higher price.
There are times when a small company may have to lower its price to meet the prices of competitors. A competitive-based pricing strategy may be employed when there is little difference between products in an industry.
Temporary Discount Pricing
Small companies also may use temporary discounts to increase sales. Temporary discount pricing strategies include coupons, cents-off sales, seasonal price reductions, and even volume purchases.
United Airlines Pricing Strategy
The essence of a pricing strategy is so that an organization can compete. Over the years, United Airlines has sort to improve through various means as it relates to the instrument of competition. In a report on Simple Flying, United Airlines CEO, Scott Kirby, issued a warning to low-cost carriers (LCC) that the organization would beat down on price.
The reason can be appreciated in the operation of the LCCs in cutting prices to penetrate the customer's needs. The success of the LCCs can be understood by observing the pricing intelligence, which is built in a different way from traditional airlines.
From their inception, they have examined pricing from the perspective of e-commerce retailers and businesses not restrained by conventional pricing and technological practices of the airline industry. According to the president, Scott Kirby, the practices of LCC will inspire United to beat any LCC on price, even if it means offering a bad product.
This begs the question of how low-cost carriers have damaged United Airlines. The development of the low-cost carrier has disrupted the pricing strategy of most legacy carriers. Even when it applies to last-minute tickets, which are usually high, these carriers were offering super-cheap tickets, thereby putting the major carriers such as Delta, United, and American almost out of business. One is left to wonder whether they can find a way to match these fares or they would soon start losing business.
On the other hand, if they matched these prices, they would erode the value of their premium margins too. This type of pricing strategy is the penetration pricing strategy that includes placing a low price for its product or service with the hope of building market share, which is the percentage of sales a company has in the market versus total sales.
Early in the previous month, an article was published on how United Airlines sort to match Delta in using the dynamic pricing strategy (The Blue Swan Daily, 2019). In dynamic pricing, the price is not firmly set; instead, it fluctuates based on diverse circumstances, such as an increase in demand at certain times, type of customer being targeted, or changing marketing conditions.
This type of pricing strategy is especially common in certain types of business, particularly those providing a service, such as airlines, but can also be used with product pricing. Examples of dynamic pricing strategy include changing conditions, time of purchase, service time, peak user pricing, and segmented pricing.
In achieving this, as United Airlines had provided, while some award prices will be lower than those available, others may be higher, especially in the case of traveling during high demand periods. The airline said, “Increasing award prices for the most in-demand flights allows us to offer lower prices on other flights. If your award travel is flexible, these updates will help you make the most of your miles.”
Finally, it is obvious from the foregoing that the united Airlines pricing strategy has undergone a few changes. This is not a rarity amongst the business of the world. The essential need for adjustment of the price is to make sure that product competes in the global market. This is why one was not too surprised when the US carrier, United Airlines proffered to detach its published chart for Mileage Plus rewards, and proposed to introduce a more dynamic flexible pricing model that will see reward levels “fluctuate based on a variety of factors, including demand”.
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