Case studies

Chapter 5: Pricing Policy

Policy Evaluation

1. For each of the following pricing policies, state whether or not you think it is a profit-enhancing, profit-destroying, or neutral policy and explain your rationale.

a) Giving double or triple frequent flyer miles to induce customers to try the airline on new routes where competitor’s already exist.

b) Giving airline passengers who have a bad experience (e.g. seriously delayed flight due to equipment problem) bonus frequent flyer miles as compensation, even though not required legally to do so.

c) Guaranteeing that if customers can find a better price on any web site for the same flight, time, and class the airline will refund the triple difference versus price paid for a ticket on the airline’s own web site.

d) Guaranteeing that if customers can find a better price on any website from any airline for a ticket on same day and the same class of service, the airline will refund the difference.

2. A local health club offers is trying to induce new memberships in January as people are making new resolutions to lose weight. They are considering reducing the rate to $75/month for the first four months of an annual membership costing $100/month. Describe at least two alternative policies for inducing trial and explain why you believe your alternatives are more likely to maximize the club’s revenue over the next year.

3. You are the manufacturer of medical tests used in hospitals for which a typical hospital will spend $20,000 to more than $100,000 per year. Unfortunately, a problem with your manufacturing process forced the closure of a plan producing some of your most popular tests for 11 months. Customers were forced to adopt competitive tests, often requiring retraining. Now you want to win customers back who liked your product but are angry about the costs they had to bear. Describe the elements of a “win back” program that you would adopt to maximize the cost-effective recovery of revenue share over the forthcoming year.

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