Tag Archives: Pricing

Communicating Pricing in a Multi-tiered Distribution Model

It is no secret that companies regularly charge different prices for the same product. Just look at the airline industry as one example. Nearly every seat has a different price, which can vary depending upon the day of the week, your status as a frequent flyer and how close the flight is to departure. The strategy behind this pricing decision is valid – lost seat revenue from departed flights can never be recouped. Airlines must try to fill every seat for the highest possible rate to maximize revenue. This pricing dichotomy can create a potential communications challenge, but only if the rationale behind this difference isn’t reasonable.

I would propose that the car rental industry’s pricing strategy doesn’t make sense, and as a result, that industry is communicating poor messaging resulting in a loss of consumer loyalty and repeat purchases. Speaking from my own experience, I see the purchase of a rental car as a commodity item, one that is identical regardless of what provider I choose to patronize, with one exception – Enterprise. They will bring the car to you. This is great service, and truly a competitive differentiator.

Here is my source of confusion – if you take the time to create an online profile with your preferences, including personal identifying information about what you like to rent and where you like to rent, this privilege you are bequeathing to the car rental company comes at a price – you are charged a higher rental fee! One might think that a “preferred” member should at least be given a coupon or some sort of advantage for going through the hassle of creating the online profile..

Let’s assume there is some sort of loyalty program that gives repeat buyers a discount. If that were the case, then the choice to purchase through a third party might be worth less to a car rental company – a commission must be paid to these purchases, reducing the economic value of such a purchase. The reality is just the opposite, and the price difference is unbelievable. At Hotwire.com, I can rent an economy car for $15 per day, provided I can create an alert and check back periodically to when that rate comes available. Alternatively, if I go directly a car rental company and try to book the same car, the price is about $80-$90 per day, for the same period, same location and same type of car, a rate increase of 400-500% higher. The only difference is that the $15 rate is non-refundable, so clearly there is some value in being able to cancel without penalty.

Perhaps, this is a reasonable pricing decision and worthy from an economics perspective to continue this practice. I don’t know, as I am not privy to this information. My point is that from a consumer messaging and business communications perspective, this discrepancy simply doesn’t make sense. For example, the car rental companies could offer a “refundable” and “non-refundable” rate, if that is indeed the source of the extreme pricing difference. Then, it starts to make sense.

In the same way that an empty “seat” on a flight represents revenue that will never be recaptured, rental cars sitting on a lot overnight represent the same opportunity cost. Clearly, a multi-tiered pricing strategy is logical. The challenge how do you execute a sensible pricing and communications messaging strategy that can be a win-win for both the company and its customers?

Does your business or industry have its own pricing “nuances” that only you, as an insider, understand? If so, maybe it is time to fix them.

Gordon Benzie is a marketing adviser and business plan writer that specializes in preparing and executing upon business plans and marketing strategies. Gordon can be found on Google+.

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Filed under Brand Integrity, Marketing Communications, Pricing