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Pricing & Price Elasticity Under a Conjoint Study

Pricing & Price Elasticity Under a Conjoint Study. Content. Industry Competition Methodology Survey Results. Industry . The Crises Economic Downturn ( second half 2000) Sep 11 What might be the best strategy ? Follow the actions of the low cost carriers Try something different.

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Pricing & Price Elasticity Under a Conjoint Study

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  1. Pricing & Price Elasticity Under a Conjoint Study

  2. Content • Industry • Competition • Methodology • Survey • Results

  3. Industry • The Crises • Economic Downturn ( second half 2000) • Sep 11 • What might be the best strategy ? • Follow the actions of the low cost carriers • Try something different

  4. Competition • Domestic • Aeromexico ( 72 Airplanes ) ( Domestic & International ) • Mexicana (64 Airplanes ) ( Domestic & International ) • Aviacsa ( 21 Airplanes ) (Domestic & Some International) • Aerocalifornia ( 22 Airplanes ) (Domestic & Very few International) • Aerolineas Aztecas ( 6 Airplanes ) • Others regional and Charters Airlines. • International • All ( AA, CO, DL, UA, LH, IB, BA…….)

  5. Competition (Cost) • Cost advantage of the competition • Labor (33%) • Capital Cost ( In the most of cases Old and cheaper airplanes ) • Sales & Reservation ( small ) • Ground Handling (small) • Similar Cost • Landing Fees • Maintenance ( Advantage Labor )

  6. Competition ( Cost ) Estimated Cost of the Airlines in México 10.0 8.7 9.0 7.9 8.0 7.4 7.3 6.7 7.0 6.0 Cvs-USD/Kms 5.0 4.0 3.0 2.0 1.0 0.0 Aeromexico Aviacsa 727 Aviacsa 737 Aerocalifornia Aztecas Operational Variable Passenger Variable Direct Fix Cost Indirect Cost

  7. Methodology • So we need to determine if something can be done to improve pricing or just mach the competition. • We need to know if the brand has a value • We need to know if the passenger are service sensitive or price sensitive and which is the point of inflexion. • What is the elasticity for the markets and segments

  8. Methodology • We know that our effort to position the brand has a value. • How Much ? • All the markets are the same ?

  9. Methodology • Choice Based Conjoint • Conjoint uncover the “ value system behind the costumer decisions, reveling willingness to pay and sensitivity to price. • It’s a quantitative approach. • It’s uses direct surveys that force customer to make trade – off ( as they would have to in the market place ). • Products and services are treated as bundles of features and price that customer consider jointly.

  10. Survey ( Markets ) ÍNDICE>> • Europa • Madrid • USA • Dallas • Los Ángeles • Miami • New York • Nacionales • Monterrey • Guadalajara • Cancún • Tijuana • Mérida • Guadalajara-Tijuana • Sudamérica • Chile • Sao Paulo * In every route there were at list 300 surveys

  11. Survey ( Questions ) • The interview has some questions that help us know the demographic data (age, sex) an others like, if the passenger belongs to a specific frequent flier program and the costumer’s drivers ( business, Pleasure or VFR ). • In the conjoint we looked at 6 variables: Brand, Price, On time performance, Frequent flier program, frequencies and comfort.

  12. Survey ( Conjoint e.g. ) Aerocalifornia Some Times ( 50% –79%)$ 1,700 km – Accumulation From 1 to 3 Frequencies every daySame seat space Mexicana Always( Punctuality > 94%)$ 2,400 Km. – Accumulation More than 8 Frequenciesevery Day Sameseat space Aviacsa Almost Always ( 80 - 93%)$ 1,900 1 Free Flight for every 5 4 – to 8 Frequencies every daySame seat space AeromexicoAlways ( Punctuality > 94%)$ 2,400 km – AccumulationMore than 8 FrequencieseverydaySameseat space

  13. Results ( CostumerDemographic Profile ) ÍNDICE>> Sex Age Civil Stage Total 75% 25% 69% 31% 63% 37% 74% 26% 16% 38% 35% 7% 4% 13% 44% 30% 9% 5% 37% 30% 18% 11% 5% 15% 48% 19% 15% 4% 59% 38% 4% 66% 31% 3% 60% 37% 4% 33% 63% 4%

  14. Results ( Drivers ) ÍNDICE>> Ticket Type Drivers Total 18% 82% 13% 87% 7% 93% 100% 75% 10% 7% 8% 62% 15% 14% 9% 44% 23% 16% 18% 26% 44% 22% 7%

  15. Results ( Brand ) ÍNDICE>> Total 59% 23% 10% 8% 28% 51% 13% 8% 24% 25% 39% 12% 25% 31% 17% 27%

  16. Results ( Price ) ÍNDICE>> Total 34% 28% 20% 18% 36% 29% 21% 14% 53% 22% 14% 12% 50% 23% 16% 11%

  17. Results ( On Time Performance ) ÍNDICE>> Total 40% 36% 24% 40% 35% 25% 33% 34% 33% 29% 37% 34%

  18. Price Punctuality $1,400.00 0.63 $1,900.00 0.18 $2,400.00 -0.36 $2,800.00 -0.45 Margen 1.08 Siempre a tiempo 0.178 Casi siempre a tiempo 0.038 Algunas veces a tiempo -0.216 Margen0.395 Comfort FFP Frequencies Mayor espacio entre asientos 0.062 Mismo espacio entre asientos -0.062 Margen0.124 1 vuelo gratis 0.120 Acumulación de Kilómetros 0.029 Sin programa -0.150 Margen 0.27 Más de 8 vuelos 0.069 6 a 8 vuelos 0.059 3 a 5 vuelos -0.042 1 ó 2 vuelos -0.086 Margen 0.156 Results ( Part-Worth ) ÍNDICE>> Airline AeroMéxico 0.6687 Mexicana 0.49363 Aviacsa -0.32968 California -0.83265 Margen 1.5

  19. Results ( Attribute Values )

  20. Results ( Perception Share )

  21. Results ( Elasticity and Revenue )

  22. Results ( Other Applications ) • Pricing Structures • Through market studies we know the basic customer behavior ( habit & Custom )for every segment so we can define the restriction by each segment. • Frequent Flier Program • To know the value and effectiveness of the communication again the others Over all we know our customer.

  23. ¿ Questions ?

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