Aviation Marketing – A Word About Pricing Strategy for Aviation Products

pricing 300x230 Aviation Marketing   A Word About Pricing Strategy for Aviation ProductsABCI  usually gets involved in a marketing campaign AFTER a product has been developed and pricing has been set, so we work with the variables we have.   But it’s great when a marketing firm actually has the opportunity to be involved in pricing strategy for aviation products.

For the sake of this discussion, the product could be anything you’re selling, even a service.

When you’re setting a price for a product, there are several factors to be considered.  What other products are on the market competing with this one? Where does this product fall in terms of quality and features?

You’ve probably seen some version of this diagram in marketing textbooks.

To quickly explain the model – we have at the upper left the economy model – low quality, no frills, lowest price.

Then we have the market penetration pricing strategy, where a product may be high quality but the price is kept low to drive out competition, with the strategy of raising the price later to make up for losses after competitors have been driven out.  This happens in some cable TV or cell phone markets.

The skimming strategy is where a high price is charged for a low quality product. The best example of this is the typical “infomercial product” (pet nail trimmers come to mind) where the product itself is not all that great but a huge, short-term  marketing push is made to sell lots of them before competitors reach the market.

The premium product is my favorite as a consumer and as a marketing professional, because high quality products are the best value for the consumer in the long run.  It’s my job as a marketing rep to prove to the customer that the price is justified.

With the current recession, it seems many companies are tempted to make a bare-bones, no frills product and charge as little as they can for it.   This is shortsighted for three reasons -

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Reason #3 – There is something to be said for “perceived value.” One Harvard Business Review case study showed that  press-on nails sold much better when the price was raised from $1.69 to $6.99. (The product, packaging, and everything else remained the same.) Women who were interviewed later said that they didn’t feel comfortable buying and wearing the cheapest product on the shelf.

Reason #2 -  There are always unforeseen costs. Developing, testing, producing and providing customer service for a product takes a lot of time and costs a lot of money.  The revenues from sales of the product have to sustain your company, your employees, customer service, research on new products, and, of course, the marketing you need to do to attract customers.  Don’t short-change your company by underpricing your product or service.

Reason #1 – (Most important)  Quality is worth working for and worth paying for. Building a better product costs more.  It involves more research, more testing, and better materials.  People understand that, and especially in aviation, consumers are willing pay more for a quality product.   And they’re willing to recommend a high-quality product to others, and buy from you again when the need arises.

One small aviation company I know could get a really great deal on a used turboprop twin or a new twin recip, but has determined to wait until they can buy their ideal aircraft – a new KingAir 350 IER configured just they way they want it.  Aviation people are very resourceful about making do until they get what they want; but they are also very particular and determined to ultimately get the very best.

Unless there is some compelling reason to use some other strategy, my advice is to always build, price, service and market a premium product.

It’s the most ethical, sustainable, and fulfilling way to do business.  Everybody wants to buy (or work for) the best in any particular business.  Do you agree? Leave a comment. Disagree?  Don’t leave a comment. :-)  Actually I’d love to hear from you, either way.

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Most of the services we provide are involved with marketing a completed product or service , but we also do consulting in the product development stages.  If you have questions, shoot me an email.

 

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26 thoughts on “Aviation Marketing – A Word About Pricing Strategy for Aviation Products”

  1. Completely agree with you.

    As a costumer, I’m always suspicious about cheap products, and most of the times I simply discard the low-end priced products, and look only to mid and high-priced ones.

    Currently, though, I’m trying to push a company in Spain which sells management software for flight schools at a reasonable price, and it seems that the recession is adding a lot of fear for the customers to decide on buying.

    The product is unique in the sense that there is no other software aiming to the microlight schools market. Has been published in three magazines as a great software. Everybody in Spain knows about it.

    But nobody is buying since the software was launched last summer.

    Anyway. Thanks for your writing.

  2. Thanks Jordi!

    Software is hard to sell these days, regardless of price. People sometimes see software as an “optional” purchase and can make do without it until the economy becomes more secure. I know it’s not very reassuring, but the marketing you’re doing now should pay off since everybody knows about it and it’s gotten lots of good publicity.

    Your potential customers are probably waiting to buy until the economy turns around, but you want to be first on their list when the first “green shoots” appear!

    Keep up the good fight.

    Warm regards from Salt Lake City!

    -Paula

  3. Disagree. Always building, pricing, servicing and marketing premium products is a great way to go broke in the fast lane. There are markets for all price ranges of a product and experience will prove it is not always the same price range (economy, mid or high) that proves to be the best selling or most profitable.
    For example: Back in the 80′s when Cub Cadet first came out with the hydrostatic drive, I paid a premium for one because I had 5 acres on the side of a hill to mow. After many trips to the repair shop for costly “adjustments”, I cleaned that critter up and put it out by the road with a for sale sign. A week later, money in hand I bought a Murray lawn tractor for a fifth of the price that lasted for 6 years with no more maintenence than oil changes. It was still running good when I sold it with the property.
    In aviation, there are also markets for all price ranges otherwise we’d all be waiting until we could afford that Super 350 King Air.

  4. Thanks Jim-

    Excellent point. There is a need for products of all price ranges.

    As much as I like the big gorgeous planes, I’m more of a Cessna 172 girl myself, since I just got my private ticket last September and am working on my instrument. It makes no sense to spend more money than that on a trainer airplane for bells & whistles that I can’t use yet anyway.

    However, I would argue that we bought the very highest quality product in that category that we could find. No disrespect to people who learn in a 1960s era Tomahawk (which I started my training in) but quality is worth it to me and I’m willing to spend the money. Also, the Cessna will have higher resale value and now has higher rental value when it’s leased to a flight school.

    Your Cub Cadet was an expensive, deluxe product, but I would argue that it wasn’t a quality product. The fact that it needed all those adjustments would indicate to me that the product managers let it out of the factory without sufficient testing. If I were a marketing rep for that product I’d be looking for another job.

    Excellent comment, and very good point. Thanks for writing!

    -Paula

  5. In the aircraft maintenance and painting arena, it’s always amazing to me how price, not quality of work, ends up being the final determining factor for most aviation consumers. In both areas, high quality work is the best value for the consumer in the long run.

  6. I think there is another component to developing a pricing strategy – - – Value. As the provider of weather, NOTAM and TFR information via a subscription based cell-phone service as well as a private pilot, I am amazed how much companies charge for providing publicly acquired information via a different delivery mechanism. Prior to developing the service, I evaluated other offerings for my own use and found them lacking in capability and over-priced.

    When I set the price for PilotGEEK’s briefing services, I did it based upon the value it provided to the pilots and not based upon what the market would yield. As a result I have developed a very loyal following of subscribers that are my best salespeople. Additionally, by offering a free 30 day trial, I make sure that the user has not only a perceived benefit to a subscription but has validated its value.

    I guess I’m a believer that providing a good product at a price consistent with the overall product’s value is the best way to build a business. If either the product is lacking OR the price is too high, the company stands little chance of long term prosperity.

    Tom

  7. Hi Paula,
    I believe the saying “horse for course” would apply here, pricing should be target driven; some flyers just wanna get from point A to B, time is of importance and comfort is secondary to ontime performance; for sake of discussion, we are using the aviation industry.

    Safety quality and timeliness may be drivers for some buyers while the frills and wow effect may be for someoneelse.

    so i posit; pricing a product, should be driven largely by quality; tangible or not, and market driven; in this case, the market/consumer opinion drives the price.

    thank you

  8. Austin – Excellent comment. I guess if we’re allowing the consumer to define “quality” then that poses a problem if the customer isn’t educated about what that means in terms of their long-term satisfaction and chooses the lowest price! The customer might answer the question about quality (or value) differently a week or three months after the purchase when they realize their mistake.

    Tom – I would be curious about how you define “value” as opposed to “quality.” If we define quality here as “how well it meets the customer’s requirements,” then would quality and value be the same thing? And who should determine it (whether you call it quality or value) if not the customer? That would also solve the problem with Jim’s Cub Cadet, which we could say was a “poor quality” product since it didn’t do the job for him.

    Perci – I like the “horse for the course” analogy. It’s a great way to answer the question about the customer’s perception of value. Which of the following factors add to the quality of my 172? A great service record, G1000 nav system, synthetic vision, leather seats, fuel injection, horsepower, trip range? I would have a different answer than our son who’s a Hawker pilot or a friend of ours who loves vintage Piper Cubs. (Both of them would say my 172 is a terrible excuse for an airplane!)

    Quality is what I say it is, since I’m the one shelling out the dough, right?

    So the first job in marketing a product should ideally happen before the product is designed – to find out what the customer’s real requirements are, (and it’s not just what we tell them they want, or what we think they should want!) I think even Austin’s customers, if you got them to sit and think about it, would define quality as a paint job that would still look good after at least a year on the flight line.

    The next job in marketing is to communicate to customers why our product will meet their needs better than competing products.

    If gold plated landing gear don’t add to the functionality for my purposes, the sales guy would certainly point them out as a fabulous feature but they don’t add to the quality of the product from my point of view.

    Thanks for some great insights and a great conversation, gents!

  9. Paula says:
    “Where does this product fall in terms of quality and features”
    As a customer I would be more interested to know about ” the benefits ” rather than the features of the product I am gonna buy or need to buy.

  10. In today’s economic environment I would say two important things which are essential at least in the Aviation industry. First, quality is often determined by price and the level of service. For example, if you receive a fare quote for a trip from New York to Los Angeles at the lowest available price and then it turns out the service was awful, you will no doubt hesitate to use that service again. On the other hand, if you receive the same price quote for the same trip on another carrier and the level of service exceeds your expectations, you will most likely use it again and tell your closest associates about it.

    Secondly, of course what most of us today are trying to achieve is quality, reliability & performance all for the lowest price. May not sound so simple but, there is at least one example in the U.S. which I can say has consistently provided all three of these elements over the past 35 yrs.

    Finally, as a student of Business & Aviation Economics the last thing you want to do is raise fares or in a more dubious way, charge numerous fees for what was always considered complimentary. When you start to change the rules of the game after it’s started you often end up with a very unhappy customer. Some of you may remember when pulling up to a gasoline filling station water and air were always free. Not so anymore.

    It’s time to return back to the “old fashioned” way we did business, when the customer was the reason why we performed and not the other way around.

    I rest my case.

    Michael A. Contés II

  11. Another consideration that applies specifically to aviation (and similar markets that have a finite potential customer base) is that if you choose to price your product/service on the low end in hopes of getting early traction, you make it much more difficult to raise your pricing once you’ve figured out that your strategy is flawed. It’s very easy to adjust pricing downward, and upward only if you’ve got customers that never heard of you and are being sold for the first time. Try to squeeze X+Y money out of current customers when they’ve paid X for a number of years and you’ll lose a customer.

    At the end of the day, margin is the only thing that matters.

  12. Excellent point, Andy!

    Whenever a company raises prices there is some backlash from customers who feel they are being “cheated.” (As Michael mentioned for companies that start charging for services that used to be complimentary!) The only way around this is to add features, quality and perceived value to the product and charge a premium for the “new” version. Even then, it has to be positioned and communicated very carefully.

    Thanks for commenting!

    -Paula

  13. Consider it rested, Michael!

    I think you’re right – consumers are fine with paying for extras that add value, but when you start charging for things that have been complimentary it’s really easy to make it look and sound to the customer like you’re trying to “cheat” them out of every possible dollar.

    That’s not a good position to be in! When margins are tight, there is always the temptation to cut corners, and I’ve seen a few promotions where people are up front about “no frills” service and do it very successfully. They advertise the lower price together with the details about what services will NOT be offered.

    We did this with Taylor Greenwood Photography’s Natural Light Special – he offered (quite successfully) an aviation photography service package where he did not pack, ship, set up and take down his lighting equipment and adjusted his price accordingly. For the right customer, that’s a great deal; and we provided enough information for the customer to make an educated choice about whether this option would work for him.

    So, the “no frills” angle needs to be up front – otherwise we could all benefit from being more old fashioned about quality and service!

    -Paula

  14. Then again you might be in a segment of the market where your competitors are giving the product away. We are in the light twin charter market and our competition is charging too little to make a profit. We are looking at a turbo prop, but it seems like that market, nation wide is even worse! Using the Conklin Dedecker data at least, they are charging only the direct operating cost of the airplane, I do not care if the owner is only trying to offset the cost of ownership, this industry needs to start charging what it really costs to operate an airplane plus a margin. The airlines are trying to out do each other by being the cheapest, and it is not working for them, why do we in General aviation think we can do any better?

    Les

  15. P.S. There were no 60′s era Tomahawks, as I brought one of the very first out west from the factory in the late 70′s … a miserable bird to fly in as an instructor (loud and a lot of sun exposure) but the students got a great feel for flying in them.

  16. It SEEMed older than a ’70s era airplane could have been , but I must have imagined it. :-) Thanks for the correction.

    Thanks Tina!

  17. Oof. Yes, that hurts the entire industry when the prices competitors charge don’t reflect reality. It’s a nasty variant of the “market penetration” strategy I mentioned.

    One can hope that their pockets aren’t deep enough to sustain that business model for long!

    In the meantime, things you can do: change your own business model to offer something customers want more – offer package deals with hotels and attractions to make your offer more attractive, provide better service, fly routes the other guy won’t take, etc. so that you can charge a decent amount for the service.

  18. A contrarian post. :)

    High quality and high price seem great in academic circles, and there are multitudes of case studies which show such great successes in that arena… but all pale in comparison to Walmart.

    As far as the paint job that lasts a year… yep, if a legal $199 Maaco style paint job for planes existed it would be huge, and there likely would be a contest amongst aircraft owners to see whose paint job lasted the longest. No doubt, folks would fuss when it started fading or chalking… but there would also be a ton of boasting that it lasted as long as it did.

    There are markets for premium flight service with gold plated everything, just as there are markets for FBO’s with 50 yr old a/c and thrift store office furnishings. One size does not fit all.

  19. Useful information. Lucky me I discovered your site by chance, and I’m shocked why this twist of fate didn’t took place earlier! I bookmarked it.

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  21. I am new into this aviation field. My company offer various quality products like sealant, cleaning product and spare parts. What I understood from all my research that quality is the important factor the product sale, but quality is something which is offered by almost all the industries in this sector. So what we are left with is pricing.

    Could you please throw some light on this and give your opinion on this?

    Thanks

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