Ever-Increasing Airline Fees

by Leave a Comment

Jet Blue and United Airlines recently raised their checked baggage fees from $25 to $30 for the first bag checked (see this article to read more).  Just 10 years ago checked baggage fees were unheard of but they are the norm today and airlines are increasingly looking for ways to add charges and fees to improve their bottom line.  Air travel is basically commoditized and, as a result, leisure travelers tend to search for the lowest price when booking travel.  This significantly hurt airline profitability until they started charging additional fees for checked bags, carry-on bags, early check-in, seat reservation, leg room, in-flight snacks, entertainment, and more.  Now airlines can benefit from the high margin they get on these fees yet still advertise low fares.

This topic presents numerous angles for a conversation with students.  Is it ethical for airlines to advertise low prices when the end price a consumer will pay will likely be significantly higher?  Why were the airlines able to enact this trend in adding supplemental charges?  i.e. if one airline started charging for checked bags, why didn’t others push free bags as a differentiator?  How does the airline industry’s status as an oligopoly affect this market dynamic?  How do business travel and loyalty programs make it easier for airlines to push price increases like this?

 

The Invention of the Price Tag

by Leave a Comment

The video linked here is a short 3 minute video sourced from NPR’s Planet Money.  It provides a brief, entertaining perspective on the history of the price tag.  Students may be surprised to know that haggling was standard practice in this country for many years.  The video does a good job of discussing not only the change itself but also various factors that led to the change – ethical considerations and issues with scale.

 

 

Discriminatory Pricing

by Leave a Comment

Dating app Tinder was recently found guilty of age discrimination based on their pricing policies.  Tinder charges individuals over 30 twice the price they charge those under 30 for their premium service, Tinder Plus.  Their rationale was that younger people have less money to spend but the court said that older members can be budget constrained as well.  You can read more about the issue in this Slate article.  Tinder argued that companies like Amazon do the same thing (with a lower price for Prime membership for students) but there’s an important distinction.  Ask your students why what Amazon does is legal and what Tinder does is not.  The key is the concept of protected classes.  Amazon provides their discount based on status as a student.  While most students are younger, there can be older students as well.  Most importantly, “student” is not a government recognized protected class whereas age, race, sex, etc. are recognized as protected classes and subject to discriminating scrutiny.

Smartphones top $1000 price point

by Leave a Comment

Smartphones revolutionized the world and it wasn’t long after the first smartphone was released that everyone wanted one of their own. For years, smartphone manufacturers were able to capitalize on unmet demand but as the product-market reached maturity and demand became saturated, manufacturers needed to find ways to entice users to upgrade in order to protect their new revenue stream.

The classic approach in technology is to release new versions of products. If a manufacturer delivers enough added value with the new release, existing consumers will be willing to buy the new product to replace their old one. But how much is necessary to entice consumers to upgrade? That answer is dependent on several factors that influence consumer buying behavior. These influences are reviewed in detail in Chapter 5 – Final Consumers and Their Buying Behavior.

This article, “Your Next Phone Will Probably Cost $1000“, talks about the latest generation of smartphones to hit the market and the various influences that will determine their success or failure. In particular, the article notes that this is the first generation of products to pass the $1000 price barrier.  The article suggests that surpassing that psychologically significant price barrier may slow adoption of the new line of phones.

Ask your students how many have purchased or intend to purchase one of these new phones, when they purchased (or intend to purchase), and why they chose to upgrade.  This can lead to a good discussion regarding all of the influences that impact that purchasing decision. Some will choose to buy primarily because of psychological social needs – the desire for status or acceptance from peers.  Others will apply a more economic assessment.  Those individuals may justify the purchase based on faster performance, larger screen sizes, new features, etc.  A full discussion of the various factors that influence consumer purchasing behavior is covered in Chapter 5 – Final Customers and Their Buying Behavior.

This conversation can also apply when covering the adoption curve discussed in Chapter 13. In any given classroom you’re likely to have students that can be classified as members of the early adopters and early majority segments of the adoption curve but you may also have members of other segments.  Asking students from each group how they make decisions about when to buy can really help illustrate the differences between segments.

“We wanted [our restaurant] to be Instagrammable”

by Leave a Comment

Most industries report a decline in the effectiveness of advertising as a means to tell customers about their product. As we note in chapter 16, customers tend to place more faith in what real people say about goods and services they might buy. Apps, including the online review site Yelp and social media site Instagram, offer customers an easy and fast way to hear about other customers’ experiences.

Restaurants have long benefited from word-of-mouth (telling a friend about that “great meal you had at the new bistro”). Today, some restaurants are looking for ways to be more “Instagrammable.” Read more at this trend in “Instagram is pushing restaurants to be kitschy, colorful, and irresistible to photographers,” The Verge, July 20, 2017.

This article could be discussed at many different points in the semester. It offers an interesting example of customer value (chapters 1, 8 and 17); for some target customers, improving the “shareability” of an experience enhances the experience. For many young people, sharing the experience is part of the experience. It also suggests how consumer behavior (chapter 5) with social media (chapter 16) can impact new product development (chapter 9). After sharing this example in class, students could be asked: why are these businesses doing this? They are likely to immediately get that it fosters word-of-mouth, but may not readily connect with other benefits.