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Professor David Wessels 2006 The Wharton School of the University of Pennsylvania 3620 Locust Walk, Philadelphia PA 19104
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Presentation Overview
With the advent of the internet, consumers now have a wide choice of air carriers. Since airlines have trouble distinguishing themselves, the business has become commoditized, and profits are difficult to obtain.
Information search
Travel websites such as Orbitz, display the prices and schedules of nearly every airline providing service between two cities. Almost half of all leisure travelers survey do not limit their search to a specific airline. For most differentiating items, the majority of surveyed travelers can not distinguish between the network carriers and low cost carriers. Business travelers will pay a premium, but the premium is extremely small. With choice plentiful, and differentiation difficult, the most travelers purchase solely on price. However, airlines still control the final purchase, and could alter the final decision.
Evaluation of alternatives
Purchase decision
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Survey Demographics
Before we start, some important characteristics about the travel survey conducted by our students
Survey Characteristics
Characteristics
The survey was distributed to colleagues of incoming MBA students. There were 1,406 respondents.
% Male % Under the age of 35 % With college or higher degree % Living in the Southeast % Leisure travelers 0% 20% 40% 39%
60%
81%
95%
% of Respondants
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For a given city pair in the United States, most network carriers and some low cost carriers will provide service.
Traditionally, the awareness set was limited to carriers flying in and out of home airport. Travel websites expanded the awareness set to the total set.
Nearly half of leisure travelers surveyed said they would not limit their search.
However, even though the consideration set has expanded greatly, most fliers continue to do business with their preferred airline (perhaps due to price matching).
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Other
75%
45% 41% Airline Website
50%
25%
35%
41%
Travel Website
0% Business
Source: Goizueta travel survey
Leisure
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Percent of Respondents
Business Leisure
4% 4%
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Presentation Overview
With the advent of the internet, consumers now have a wide choice of air carriers. Since airlines have trouble distinguishing themselves, the business has become commoditized, and profits are difficult to obtain.
Information search
Travel websites such as Orbitz, display the prices and schedules of nearly every airline providing service between two cities. Almost half of all leisure travelers survey do not limit their search to a specific airline. For most differentiating items, the majority of surveyed travelers can not distinguish between the network carriers and low cost carriers. Business travelers will pay a premium, but the premium is extremely small. With choice plentiful, and differentiation difficult, the most travelers purchase solely on price. However, airlines still control the final purchase, and could alter the final decision.
Evaluation of alternatives
Purchase decision
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On-time arrival Connecting flight convenience Customer service Check-in convenience 3 3.5 4
4.5
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Even for business travelers, the ability to upgrade, the quality of meals, and the availability of first class does not matter. Airlines have responded to less popular attributes by removing meals and making upgrades difficult.
Professionalism of airline personnel Ability to change or cancel plans w ithout penalty Efficiency of airline security checks Airport Location Seat size or legroom on plane Loyalty program Ability to upgrade Quality of meals Availability of business class or first class 0 1 1.7 2 3 2.3 2.2
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Percent of Respondents
-150% -100%
-50%
0%
50%
100%
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5.2%
5.1%
4.7%
4.4%
4.1% 2.3%
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Presentation Overview
With the advent of the internet, consumers now have a wide choice of air carriers. Since airlines have trouble distinguishing themselves, the business has become commoditized, and profits are difficult to obtain.
Information search
Travel websites such as Orbitz, display the prices and schedules of nearly every airline providing service between two cities. Almost half of all leisure travelers survey do not limit their search to a specific airline. For most differentiating items, the majority of surveyed travelers can not distinguish between the network carriers and low cost carriers. Business travelers will pay a premium, but the premium is extremely small. With choice plentiful, and differentiation difficult, the most travelers purchase solely on price. However, airlines still control the final purchase, and could alter the final decision.
Evaluation of alternatives
Purchase decision
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The business market is still controlled by travel agents. Therefore, some pricing power can be generated by controlling the channel. Travel agents should still be offered incentives to sell higher priced fares when possible.
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Conclusion
The internet has expanded the awareness and choice sets for the average consumer. The internet reveals only price, schedule, and number of stops, so most consumers rank choices based on these factors only. Other factors are either unimportant, or are impossible to distinguish amongst airlines. To survive, network carriers must lower costs to within 5% (the average premium willing to be paid for services) or find alternative ways to distinguish their airlines.
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