Harvard Case - Pricing at Vocram Airways (A)
"Pricing at Vocram Airways (A)" Harvard business case study is written by Fredrik Odegaard, John G. Wilson. It deals with the challenges in the field of Entrepreneurship. The case study is 3 page(s) long and it was first published on : Nov 24, 2014
At Fern Fort University, we recommend that Vocram Airways implement a dynamic pricing strategy based on real-time demand and competitor analysis. This strategy should leverage technology and analytics to optimize pricing across various routes and fare classes, ultimately maximizing revenue and profitability.
2. Background
Vocram Airways is a low-cost airline founded by two entrepreneurs, John and Mary, with a vision to provide affordable and accessible air travel. The company has experienced rapid growth since its inception, rapidly expanding its route network and fleet size. However, the current pricing model, based on fixed fares, is proving inadequate as the company faces increasing competition and fluctuating demand.
3. Analysis of the Case Study
Strategic Analysis:
- Competitive Advantage: Vocram?s initial success stemmed from its disruptive innovation in the airline industry, offering lower fares and a simplified service model. However, this advantage is eroding as competitors adopt similar strategies.
- Growth Strategy: Vocram?s expansion plans rely on business growth through increased route coverage and market share. However, this requires a more sophisticated pricing strategy to remain competitive and profitable.
- Market Segmentation: Vocram currently targets a broad market segment. Implementing a dynamic pricing strategy can allow for market segmentation by offering different price points based on customer needs and preferences.
Financial Analysis:
- Profitability: The current fixed pricing model is not maximizing revenue potential, leading to fluctuating profitability. A dynamic pricing strategy can optimize revenue by adjusting prices based on real-time demand.
- Investment Management: Vocram needs to invest in technology and analytics to support a dynamic pricing model. This investment will be crucial for data collection, analysis, and implementation.
Marketing Analysis:
- Branding: Vocram?s brand image is tied to affordability. Implementing a dynamic pricing model requires careful communication to ensure transparency and maintain customer trust.
- Marketing Strategy: A dynamic pricing strategy requires a more sophisticated marketing approach, leveraging web and mobile applications to communicate price fluctuations and value propositions to customers.
Operational Analysis:
- Information Systems: Vocram needs to invest in robust information systems to collect and analyze data on demand, competition, and customer behavior.
- Operations Strategy: A dynamic pricing model requires efficient operational processes to ensure accurate and timely price adjustments.
4. Recommendations
1. Implement a Dynamic Pricing Model:
- Develop a sophisticated pricing engine: This engine should leverage data on demand, competition, and customer behavior to dynamically adjust prices across routes and fare classes.
- Define pricing tiers: Implement different price tiers based on factors like booking time, demand, and customer preferences.
- Utilize real-time data: Continuously monitor and analyze data to adjust prices in response to changes in demand and competitor pricing.
2. Invest in Technology and Analytics:
- Develop a data warehouse: Collect and store data on demand, competition, customer behavior, and operational performance.
- Implement data analytics tools: Utilize advanced analytics to identify trends, patterns, and optimize pricing decisions.
- Integrate data with pricing engine: Ensure seamless data flow between the data warehouse and the pricing engine for real-time price adjustments.
3. Enhance Marketing and Communication:
- Develop a transparent pricing communication strategy: Clearly communicate the rationale behind price fluctuations to customers.
- Utilize web and mobile applications: Leverage these platforms to display dynamic pricing information and offer personalized pricing options.
- Implement targeted marketing campaigns: Promote different price tiers to specific customer segments based on their needs and preferences.
4. Build a Strong Internal Team:
- Hire skilled data scientists and analysts: Recruit individuals with expertise in data analysis, pricing optimization, and airline operations.
- Develop internal expertise: Train existing staff on the principles of dynamic pricing and data-driven decision making.
- Foster a culture of innovation and collaboration: Encourage cross-functional collaboration between marketing, operations, and technology teams.
5. Basis of Recommendations
These recommendations are based on the following:
- Core competencies and consistency with mission: Dynamic pricing aligns with Vocram?s mission of providing affordable and accessible air travel by optimizing revenue and profitability.
- External customers and internal clients: The recommendations address customer needs for transparency and value, while also providing internal teams with the tools and resources needed to implement a dynamic pricing model.
- Competitors: Dynamic pricing is becoming increasingly common in the airline industry, making it crucial for Vocram to adopt this strategy to remain competitive.
- Attractiveness: The potential benefits of dynamic pricing include increased revenue, improved profitability, and enhanced customer satisfaction.
6. Conclusion
Implementing a dynamic pricing strategy is crucial for Vocram Airways to maintain its competitive edge and achieve sustainable growth. By leveraging technology and analytics, Vocram can optimize pricing, maximize revenue, and provide customers with a more personalized and value-driven experience.
7. Discussion
Alternatives:
- Maintaining the current fixed pricing model: This would be unsustainable in the long run as competition intensifies and demand fluctuates.
- Implementing a simple price differentiation strategy: This would be less effective than a dynamic pricing model, as it would not leverage real-time data and insights.
Risks:
- Customer backlash: Customers may perceive dynamic pricing as unfair or confusing, leading to negative sentiment and brand damage.
- Technological challenges: Implementing a sophisticated dynamic pricing model requires significant investment in technology and analytics, which may pose operational and financial challenges.
Key Assumptions:
- Customer acceptance: Customers will be receptive to dynamic pricing if it is implemented transparently and communicated effectively.
- Technological capabilities: Vocram has the necessary technological infrastructure and expertise to implement a dynamic pricing model.
8. Next Steps
Timeline:
- Month 1: Conduct a comprehensive market analysis and competitor benchmarking to assess the feasibility of dynamic pricing.
- Month 2: Develop a detailed business plan for implementing a dynamic pricing model, including investment requirements, technology selection, and marketing strategy.
- Month 3: Begin pilot testing the dynamic pricing model on selected routes and fare classes.
- Month 4: Analyze the results of the pilot program and refine the dynamic pricing model based on learnings.
- Month 5: Roll out the dynamic pricing model across the entire route network.
- Month 6: Continuously monitor and analyze data to optimize the dynamic pricing model and ensure customer satisfaction.
Key Milestones:
- Investment in technology and analytics: Secure funding and implement the necessary technology infrastructure.
- Development of a dynamic pricing engine: Design and build a sophisticated pricing engine that leverages real-time data and insights.
- Training and development: Train internal staff on the principles of dynamic pricing and data-driven decision making.
- Marketing and communication: Develop a transparent and effective communication strategy to inform customers about dynamic pricing.
By following these recommendations and taking the necessary steps, Vocram Airways can successfully implement a dynamic pricing strategy that will drive revenue growth, improve profitability, and enhance customer satisfaction.
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Case Description
The owner of a small air-passenger firm transports individuals and small groups to remote waterfront regions. The business serves two types of customers: private and public. The private customers can afford to pay more, while the public customers' budget constraints limit what they can pay. The owner wants to set a single price that will maximize his expected revenue across both customer groups. A constraining factor is the plane's limited capacity, which means the owner cannot accommodate all requests. In other words, after a flight has been sold out, seats may still be requested by customers who potentially might be willing to pay more. See supplement W13725.
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