Paying less and less, getting less and less

The response by airlines to customers’ demands for lower and lower fares has been to do exactly that, lower seat costs, but at the same time to strip more and more of what is included in the fare out of the price.

This process – referred to by Time as “the unbundled skies” – points to a business model that I see becoming more prevalent, and not just in the heavens, as price-sensitive brands lower entry points in order to get customers to commit, and then use “upgrades” to restore margin and, according to the article, add another 50% or so to the real price. Pay less, get less. Want more? Pay more. Ryanair have even suggested, somewhat controversially, that “more” could include access to the toilet. In fact, according to one consultant quoted, there are up to 35 add-ons available when you fly, ranging from baggage and food fees to flight-delay insurance and keeping the middle seat empty. You literally get what you pay for.

This seems like an expedient answer to customers’ demands for cheaper goods. Lure them in – then trick them into paying more. It’s not exactly customer-friendly but at least, some would argue, it’s a way to compete.

True, but changing the competitive model this way is not without its consequences. One is that as the product itself becomes less valuable and valued, service now comes not just at, but with, a price. That in turn shifts the emphasis from what customers get to what do they not get, and what shortfalls they are prepared to do without.

For the moment what’s happening in the aviation sector amounts potentially to a complete economic rebalance of the product at that end of the market. As the article points out, “In the unbundled world, airfare is merely the price of admission to get on a jet. If you crave comfort, convenience, less stress, decent food — what was once called good service — expect to pay up.”

In time, the service itself, not the seat, will become the real competition point, as customers look to ‘build their own flights’ made up of base product and services that they are prepared to ‘add to cart’. Staff meantime will find themselves being judged on their ability to up- and cross-sell services in order to make targets.

We shouldn’t be surprised. As sectors continue to fill with competitors, radicalisation of branded business models is inevitable, with all-included at one end of the market and not-included at the other, and increasingly little between them.

While the model has far wider applicability than the airline industry, the dilemma for brands in such a scenario is that when you uncouple what people get from how you want people to feel, you reduce every part of the experience to a transaction, and every element of loyalty to the same level.

Everything becomes “do I or don’t I?”

As to where this might go, well that seems fairly predictable too. As the fight for seats gives way to loss leader seat strategy, and a squabble over a la carte services and the quality and profitability of those services, medium-term we’ll probably see airlines respond by using a mix of lower fares, bundled services and loyalty incentives to adjust and respond to value perceptions.

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