Le Shuttle versus the Ferries:

Pricing strategy
GROUP BT 7
GLAZYRINA ANASTASIA
GUSEINOVA TAMAM
CHADHA JIYA
DE BARRY NICOLAS
Agenda
Background and Problem Definition
Determining Competitive Pricing
Recovering Investment through Pricing Strategy
Empirical test
Conclusion
06.10.2014 GROUP BT 7 2
Background &
Problem Definition
Determining
Competitive
Pricing
Recovering
Investment
Through Pricing
Empirical Test Conclusion
1981 1987 1985 1988 1990 1994
Summit between UK and
France to decide the
prospects of the link
British and French
governments ask for
proposals for link
Twin track rail tunnel by
Channel Tunnel group and
France- Manche (CTG/F-M)
was approved. They were
given operating rights for 50
years.
Construction plans ready
with 6 billion in store
thanks to the usage
agreements with SNCF
and British Rail
Capital investments
into system already
risen to 7.6 billion
Began operations with
actual total financing
requirements exceeding
11 billion
Rail tunnel to open in 1993 with a
total cost of 4.9 billion
Only annual interest amounted to
700 million (more than 80,000 per
hour)
Eurotunnel intended to derive revenue from 3 sources:

1) Through service passenger trains operated by a joint
venture-Eurostar

2) Through service freight trains

1) Passenger and freight vehicles transported by Le
Shuttle- owned and operated by Eurotunnel
What is the most optimal pricing strategy for Le Shuttle in
order to compete with the established ferry system?
What other factors really affect this pricing
approach?
06.10.2014 GROUP BT 7 3
How can Le Shuttle recover its vast investment?
Peak-season car travellers Bulk freight
Load on load off containers
Roll on roll off containers
Off-peak car travellers
Value in avoiding peak-time delay
Constrained travel dates

Containers attached to trucks
Stackable containers were
loaded on and off from trucks
Coal, steel, lumber
Car Passengers Freight Traffic
Primary competitor is P&O and Sealink the ferries
with largest market share

The cost structure for ferries and Le Shuttle is quite
different
MARGINAL COST
Ferry: 75 (car passengers) 110-142 (freight)
Le Shuttle: 15 (car passengers) 12-25 (freight)

Background &
Problem Definition
Determining
Competitive
Pricing
Recovering
Investment
Through Pricing
Empirical Test Conclusion
06/10/2014 GROUP BT 7 4
How should Le Shuttle price its services relative to the Ferry System?
1) Premium Pricing 2) Match the pricing 3) Undercut
Le Shuttle & the ferries serve the same market and
customers
Le Shuttle should take advantage of its low marginal cost and low switching costs to undercut the
prices of the ferries in order to gain more customers who seem to be price sensitive
Car passengers value:
Reliability- 70%
Value for money 65%
Speed 30%
Truck operators value:
Cost reductions
Route preference
Speed
06.10.2014 GROUP BT 7 5
Le Shuttle can increase revenue using dynamic pricing
The dynamic pricing model can be used by Le Shuttle to cover vast investments and gain revenue it
may loose by remaining static and undercutting the ferry prices.
Ferries are using dynamic pricing strategy
Background &
Problem Definition
Determining
Competitive
Pricing
Recovering
Investment
through Pricing
Empirical Test Conclusion
With prices below the ferries, how can Le Shuttle recover its vast investment?
Peak season: 142
Off season: 77
http://spinnakr.com/blog/ideas/2013/08/variable-pricing-models-work-for-tech-startups/
10 x variable costs of Eurotunnel Low variable costs
The Ferries : P & O Le Shuttle
Costs
Duration
More route options Only Dover-Calais
Duration of the journey : 2h 30 Duration of the journey : 1h 15
Risk of seasickness More comfortable trip
Reservation needed for peak
season
Not mandatory ; trip every 2
minutes
Routes
Comfort
Reservation
Various advantages that Le Shuttle
has over ferries, especially for peak
season car passengers
Family travellers
Price inelastic
Prioritize availability, comfort

Little evidence of route or operator
loyalty for car passengers

Take advantage of such variables and
increase our price above ferry price
during peak seasons and high
demand dates




Le Shuttle should take advantage of its competitive offer, customers willingness to pay, & price
inelasticity at peak hours, in order to raise prices above ferries for peak season travellers and increase
revenue thus creating a dynamic pricing model
Background &
Problem Definition
Determining
Competitive
Pricing
Recovering
Investment
Through Pricing
Empirical Test Conclusion
06.10.2014 GROUP BT 7 6
How can the dynamic pricing be implemented?
For Freight:
1. 75 % of freight market share through
Felixtow-Belgium/ Holland Corridor
2. Price elasticity Truck would not necessarily
go through the nearest port if the overall trip
cost was lowered by driving farther
3. Prediction that increased freight via Europe
to Britain will increase
Undercut the ferry prices as it is a growing customer
segment with price elasticity
Use dynamic pricing to adjust prices in case demand
rises as forecasted
Off-peak car passengers
1. Travel time is important
2. Will wait for off peak hours avoid delay
and get desired price
3. Sudden travel plans, may not necessarily
book in advance

Undercut the ferry segment as Le Shuttle
restricts routes and may increase the travel
time for certain customers
Use dynamic pricing model gain revenue
from customers in presence of other variables
06.10.2014 GROUP BT 7 7
Background &
Problem Definition
Determining
Competitive
Pricing
Recovering
Investment
Through Pricing
Empirical Test Conclusion
Can the dynamic pricing model be implemented for all customer segments?
Other than on peak car passengers, it seems more viable to use the dynamic model while still remaining
below the prices of the ferry in order to gain/ retain customers and change prices according to demand and
other variables
P
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Ticket types
Date of travel
Types of vehicles
Loyalty programs
Trip duration
Booking time
06.10.2014 GROUP BT 7 8
Background &
Problem Definition
Determining
Competitive
Pricing
Recovering
Investment
Through Pricing
Empirical Test Conclusion
30
50
70
90
110
130
150
170
190
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30
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Depending on time during the day
Depending on day
Le Shuttle has indeed adopted dynamic pricing based strategy on time of travel and trip duration while
undercutting prices for day/overnight travels and setting premium prices for longer and one way trips
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9
Le Shuttle Standard P&O Ferries
Le Shuttle Short Stay Saver Le Shuttle Day/Overnight
06.10.2014 GROUP BT 7 9
Background &
Problem Definition
Determining the
Pricing Structure
Recovering
Investment trough
Pricing Strategy
Empirical Test Conclusion
What is the most optimal pricing strategy
for Le Shuttle in order to compete with the
established ferry system?
What are the factors that will affect this
pricing approach?
How can Le Shuttle recover its vast
investment?
Questions Solutions
While launching the Le Shuttle, it should
generally cut prices to gain market share as
ferries were dominant (P&O , Sealink)
Le Shuttle can use dynamic pricing to match
the high demand during peak season
Empirical Analysis shows that indeed Le Shuttle uses dynamic pricing to increase prices to match demand on key
dates, and durations of > 2 days but undercuts the ferry prices for overnight trips and last offers
X We find that in todays date Le Shuttle uses dynamic pricing with premium pricing for most car passengers- deviating
from our hypothesis to undercut as a general rule
Demand for Le Shuttle and thus its market share has increased (developed its niche)
Customer values have changed and their willingness to pay plays a larger role

As tested by our Empirical analysis, we have
found that date of travel, duration , &
booking time play a role in the ticket pricing
Enabler
Low marginal costs, meet price
sensitive needs
Different value offering to different
customers segments
Variables relating to customer
preferences are more relevant than
competition to set prices
http://spinnakr.com/blog/ideas/2013/08/variable-pricing-models-
work-for-tech-startups/
www.poferries.eu
www.eurotunnel.com/uk/tickets/

06.10.2014 GROUP BT 7 10
Sources
06.10.2014 GROUP BT 7 11
Supplement Times: Times: Applicable Dates
Folkestone to Calais Calais to Folkestone
Off Peak 16:00 - 05:59 00:00 - 13:59 Applies to every day of
the year
Standard Peak
(a 20 supplement will
apply)
06:00 - 15:59 14:00 - 23:59 Applies to every day of
the year excluding
those listed under High
Peak travel dates below
High Peak (a 30
supplement will apply)
06:00 - 15:59 14:00 - 23:59 See table
Appendix