“Hello Mark, I have a pricing topic you may or may not want to use in a blog. I recently returned from a weekend trip to Denver. I booked the flights using Travelocity, because the cheap Southwest airlines fares are were all gone. I flew United to Denver and returned on Frontier. Everything about the flights was fine (on-time, cleanliness, quality of service, etc.), with the exception of my online check-in with Frontier. They charged me $40 for a carry-on package that I was not aware of at the time I bought the ticket.
I was very mad for two reasons. I hate surprise charges and, right or wrong, I don’t feel airlines should charge for carry-on luggage. I paid my $40 plus $15 fee to reserve a window. Note that I use the $15 early check-in with Southwest all the time, so this fee is acceptable in my mind. So here is the kicker. I get to the airport with time to spare, and I pull up my email confirmation that shows the total flight for the one-way fare. And it is $125, which I say to myself, “Oh that is reasonable,” but I am still upset and will try my best to avoid Frontier when ever possible.
I am sure there is fine print somewhere that told me the baggage fees were not included. If there would have been a pop-up window asking me, I would have not been surprised, and I would have bought the ticket and been happy with the total price of the ticket. My point is that there was good value in the ticket price, and the service was fine, but I am still unhappy because of the way they priced the ticket. – Stewart”
In this case, Frontier sold Stewart a very inexpensive ticket. Stewart believed that was his total price. (Obviously he hasn’t flown no-frills airlines before.) He was surprised with an additional fee, which upset him.
Do we think Frontier is pricing well or not? Having a very low fare on Travelocity will obviously bring in business, so it seems good at first glance. Then, they have complements or add-ons they sell at good margins, which is also a good pricing move. These are things they may have learned in my pricing class, so I can’t condemn them for it.
The downside is in Stewart’s statement: “But I am still upset and will try my best to avoid Frontier whenever possible.” I’d predict that if Stewart was really upset and never again flew Frontier, and if everyone is like Stewart, then Frontier is making a huge mistake. However, knowing my friend Stewart, he will fly Frontier again if it’s cheapest. (You could tell he’s frugal by the beginning of his story.) Maybe this first time he’s upset. But if he buys from Frontier again, he will know what he’s getting into and won’t be so upset.
But let’s say Stewart was mad enough to never fly Frontier again. Is everyone like Stewart? (I hope not.) The fact that Frontier has a loyalty program says that some people are repeat customers. Frontier has made a market-segmentation decision that they will market and sell to buyers who do not banish them forever for high-priced complements.
Here’s a general business rule: Don’t upset your customers.
Profound, huh? But a more nuanced version might be: Serve market segments you will not upset.
I know many people who fly the no-frills airlines. There is nothing wrong with that. I happen to be a frequent flier on American Airlines and am unhappy when I find myself on any airline except American. Most of my colleagues also have a favorite airline. Stewart’s favorite airline is obviously Southwest. This is what segmentation is all about. Your key takeaway: Know your target market segment and serve them exceptionally well. You can’t be everything to everybody.