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Posts Tagged ‘Pricing’

What would you expect to be the most popular post on this blog? Something on lean operations? One of those posts on managing queues? Nope. The most popular post by a wide margin (more than 13,000 page views than the next most popular post) is something Gad wrote in 2011 on how airline ticket prices vary by day of week. The conclusion of that analysis was that Tuesdays are the best day to buy. The story behind this rests on how airlines manage their pricing. While airline revenue management systems are largely automated closing out fare classes on flights as fill up, they do require some human intervention. That intervention tends to happen early in the week as managers evaluate how well leisure fares sold over the weekend.

But is that still true? According to the Wall Street Journal, no (The Best Day to Buy Airline Tickets, Oct 22).

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A new deep dive into airline fares suggests Sunday is the best day to find low fares. This is a departure from the conventional wisdom of recent years, when Tuesday was considered the best bet.

Airlines Reporting Corp., which processes tickets for travel agencies and handles about half of all tickets sold, tallied up ticket sales. Over a 19-month period ending in July, 130 million domestic and international round-trip tickets worth $94 billion showed the lowest average price, of $432, was on Sunday. At $439, Saturday’s average is also lower than Tuesday, which averages $497.

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If you live here in the States, you may never have heard of the telecommunications company EE. But they are a major player in the United Kingdom with brands like Orange and T-Mobile. According to their Wikipedia page, they have around 28 million customers. EE has a new service offering that I must admit is kind of intriguing. Here is how it is described on their web page.

Priority answer service

From 6 August 2014 we’re also introducing a priority answer service. It’s available to all customers on pay monthly and SIM only plans.

Our priority answer service gives you the choice to get support even faster for just 50p per call when you call 150 and want to speak to customer services. It’s always available so if there’s a queue, you can be moved towards the front – ideal if you’re in a hurry.

How much it costs

The charge for this is 50p. If you’re on a plan that includes standard charging for customer services at 25p, you’ll only be charged an extra 25p for priority answer – so the total for the call with priority is 50p.

The 50p charge applies regardless of how long the call lasts.

To save the Americans the trouble of Googling this, 50p works out to about 84¢. So what do you think happens when customers are given the chance to jump the queue for less than a buck?

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I have a long-standing interest in Black Friday — less because I want to go shopping but more because it poses some interesting questions on how firms compete and how they manage customers. The news this year is that Black Friday is creeping evermore into Thanksgiving proper as retailers keep moving up their opening times. So why are they doing that? Two posts on Businessweek.com put forward theories. The first posits that this is being driven by customer segmentation (The Game Theory Behind Macy’s Thanksgiving Opening, Oct 15).

Traditions are being trampled on by the Corporate Retail Complex! Of course, consumers don’t have to go. Some won’t, and that’s precisely what the strategy folks at Macy’s are betting on.

The purists scandalized by the thought of shopping on the holiday itself aren’t likely to avoid Macy’s altogether. And with the die-hard bargain-hunters swarming the stores on Thursday, Friday shopping will likely be much more pleasant for those who are a little less committed.

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In the basement of the Kellogg School, there is a cafe. It’s a busy cafe, which says more about the available alternatives than about its absolute quality. Because it gets busy and because a good number of its customers are polite enough to walk out of class five minutes early to beat the crowd, I and my colleagues have learned that it is a much better to plan to go down for a sandwich a little before noon than a little after noon. According to CNBC, Goldman Sachs faces similar issues with queuing in its cafeteria and it actively tries to manage the system (The creepy capital efficiency of Goldman’s cafeteria, Oct 17).

The most crowded time of the day to eat lunch is, naturally, during lunch time. For most people, this falls around noon. This creates the phenomenon of the lunchtime rush hour. You know this all too well if you’ve ever tried to stop in your local chopped salad place at, say, 12:30 in the afternoon.

Goldman didn’t like the idea of its people waiting on long lines to get their lunch. People are capital to Goldman. It wants to use its capital efficiently. Standing on line waiting for dumplings or salad or a burger is not an efficient use of Goldman’s capital. …

The cafeteria has a set of timed discounts. If you show up in the cafeteria before 11:30 or after 1:30, you get a 25 percent discount on your food. Goldman incentivizes employees to avoid the rush hour.

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Congestion is a common problem in services. A large number of customers put demands on the system all at the same time and delays ensue. A few weeks ago we posted about GymFlow, an app that tries to address congestion at health clubs by providing better information. GymFlow doesn’t tell you can’t go to the gym at 5:30. It just points out that the gym is going to be a whole lot less crowded if you got 3:30.

Now the Wall Street Journal has an article on a different way to ease congestion by relying on games and lotteries (Gaming the System to Beat Rush-Hour Traffic, Aug 1). It reports on the work of Balaji Prabhakar, a Stanford Computer Science professor, who has tested out various systems to get commuters to tweak their travel habits. The article’s author discusses his approach here:

Here is a summary of one of Prabhakar’s at his place of employ.

His team recently brought the technique home with a federally funded experiment to help Stanford keep its promise to Santa Clara County to alleviate rush-hour traffic. The 3,900 participants—a significant share of the relevant pool of 8,000 parking-permit holders—installed devices on their cars (soon to be replaced with a smartphone app) and got points for arriving and leaving an hour before or after the rush hour.

The popularity of the Chutes & Ladders-like game stunned Stanford’s director of parking and transportation, Brodie Hamilton. He doubted people would take the time to spin the electronic dice to play it, and insisted that Mr. Prabhakar include an auto-play feature. But, Mr. Hamilton says, “I have people on my staff who play it regularly. People are really into it. Balaji was right!”

About 15% of the trips taken by participants have shifted away from rush hour. Students tend to come and leave later; staff tend to come and leave earlier. Smartphones make all this easier to implement: A new mobile app tracks bikers and walkers and gives them points, too.

Those who commuted off-peak got points to play in the on-line game with a chance to win cash. We are not exactly talking a year’s tuition here. The program’s website touts “random cash rewards from $2 to $50.”

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Check out these two images from the Wall Street Journal (Airline Seats Available for Elite Fliers Only, July 12). Both show available seats on an American Airline flight from LA to New York. The first shows what’s available if you lack any status in American’s frequent flyer program. The second shows what seats are offered to a flyer with sufficient status in the frequent flyer program.

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Untitled copyTo be clear, these seating charts are for the same flight at the same time — all that differs in one’s frequent flyer status. Further, while this example comes from American, other airlines play similar games.

Unlike American, Delta Air Lines shows the Preferred seats it has held back for elite customers, but doesn’t allow regular customers to book them until 24 hours before departure. At that time, Preferred seats are offered for a fee to nonelite-level customers.

US Airways also blocks seats for elite-level customers and labels them Preferred. The airline sells what it calls Choice seats in rows near the front of the cabin for $5 to $99 one-way that don’t have extra legroom but do have early boarding privileges. On the whole, US Airways says 9.5% of its coach seats are labeled Choice. Preferred, Choice and exit-row seating, which is sometimes sold for a fee, account for an average of 30% of coach seats on the airline’s planes.

Those seats open up to customers without seat assignments who don’t want to pay starting 24 hours before departure, US Airways said.

Not to surprisingly, a lot of customers find these games rather annoying. In the American example, there is one seat to be had for free for a non-elite flyer in what can only be described as a crappy location. The article has this wonderful quote “American says it doesn’t think blocking open seats from view pressures customers into paying for extra-legroom or Preferred seats.” which makes you wonder whether the folks at American are naive or dishonest.

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t2_2TKTS has long been a Time Square fixture. For those unfamiliar with it, TKTS is a non-profit that sells discounted tickets to Broadway and off-Broadway shows. It recently celebrated its fortieth anniversary and Marketplace had a story summarizing its business (Broadway discount booth TKTS turns 40, Jun 26).

“Shows look at their inventory the day before and they say: I’ve got tickets to sell, I don’t have tickets to sell,” says Victoria Bailey, executive director of the Theatre Development Fund, a non-profit that owns TKTS.

Bailey says TKTS sells nearly 2 million tickets a year. Theaters get the ticket money, and TKTS takes a $4 service charge. Bailey says a good year on Broadway isn’t necessarily a good year for TKTS.

“A good year for TKTS: You need a lot of shows running, doing well enough that they keep running, but not so well that they don’t have empty seats and need us to sell seats for them,” she explains.

That’s all good. The quote in the story that got me thinking, however, was the following.

Larson notes critics have said TKTS pushes ticket prices up because theaters know that they can get rid of seats if they overcharge. TKTS’ Victoria Bailey says Broadway ticket prices have risen sharply over the years. Tickets now generally run $100-150, but can easily be more than twice that. Still, she says, you don’t have to shell out that kind of money to see a show. You just have to wait.

Does having a secondary outlet boost prices?

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