Pricing the Concorde
An ‘out of the blue’ documentary appeared on TV that captured my interest recently - unlike most, I keep thinking back to it. Now airlines aren’t really my thing, but one 5 minute segment featured an interesting pricing strategy that effectively revived a failing company line. So I watched..
Image by Wolfgang Brauner from Pixabay
Turns out the Concorde, even for your average consumer or someone who has no interest in planes, is pretty impressive looking but had some serious limitations, such as
restricted speed over land routes
huge development costs - actually resulting in the naming of the behavioural economics term - "Concorde fallacy" (sunk cost effect), and
dismal sales - at one stage it was running at a (£)20m loss.
According to one source, “Concorde was foisted on British Airways and Air France by their governments; not a single aircraft was ever commercially sold”.
So how’d it become British Airways flagship carrier?
REPOSITIONING
History aside, what struck me was that it was already reasonably expensive - only the very wealthy flew it and despite the price tag it consistently returned hefty losses.
It wasn’t until a new CEO assigned a Concorde Captain to a dedicated Concorde division and gave him responsibility of turning significant losses into profit within 2 years to ensure the line would not be shut down.
Any pricing lessons aside - the love this new division had for the Concorde was impressive, they loved the plane, the service and what it stood for (not their tasks or their employee benefits..). So maybe this was also a nice demonstration of what giving passionate employees a sense of ownership can do.
Set with their task, the Concorde division gathered to find a way to make itself and its aircraft viable.
The new division sought market research - the results showed some interesting buyer insights, including:
users vs buyers: the passenger was NOT the purchaser of their ticket, their secretaries were, and
perceived value: even though it was expensive, the passenger actually thought the fare was much HIGHER than it was. Interesting!!
Their conclusion was to RAISE ticket prices to match their customers (users) perception. They offered expensive french champagne and provided amazing 3 course meals throughout each service (even the short ones). They even had different uniforms. They effectively re positioned themselves to a super premium service.
Here’s the kicker - After the price rise, sales skyrocketed and resulting turnaround was (£) 50million profit.
This approach was so successful that rather than a failed very expensive engineering/political project, British Airways was able to position Concorde such that it became a flagship symbol of both British Airways and national pride across the UK. An impressive result.
By the end of the doco, even I wanted to get on a flight.
THE TAKEAWAY…
Understand the context in which your customer is buying and what they value. The Concorde was under-priced compared to the value perceived by the user. I dare say a lot of services are.
Who is your customer (the user of your service) and what are they used to buying/paying? Where is your service ‘anchored’ or ‘positioned’ in their mind? At any given price you’ll be too cheap for some potential customers, and too expensive for some. Where do you want to be?
The customers that were flying the Concorde were used to paying seriously high prices - perhaps to them it was just like business class on Qantas.. Higher prices moved it into a league of it’s own and in line with the customer’s perceived value - higher pricing also increased the prestige, with prestige comes demand. It became a celebrity.
Perhaps there were some potential customers choosing not to fly because it was too cheap - maybe they’re better getting a private Jet - not now the Concorde is about the same price.
Another marketer’s recap on this exact lesson is here.