Please answer the following questions:
- Explain when marketing research should be conducted? Discuss the growing importance of scanner-based research (5 points)
- During recession what pricing strategies would you consider using to gain or maintain product/market share? (5 points)
- Case Study (15 points)
RYANAIR’S PRICING RAISES EYEBROWS
Started in 1985 with a single 15-seat aircraft flying one daily run between Waterford Airport in Ireland and Gatwick Airport in London, Ryanair now ranks as one of the 20 largest airlines in terms of passengers. In 2006, the airline hauled over 42 million passengers. But has its low-cost model and obsessive focus on the bottom line pushed it over the edge on frugality? According to one report, Ryanair had at least 15 separate taxes and charges, which sometimes totalled more than the ticket itself. In February 2008 the company reported that money raised from these extra charges had risen 30 percent to 111 million euros in one quarter. All the while, however, the airline reduced actual seat ticket prices by 4 percent. Savings through reduced airport and aircraft costs are supposedly passed on to Ryanair passengers via lower fares.
Airport costs include such amenities as the airline check-in desk—something Ryanair hopes to abolish. By 2010, Ryanair was suggesting that all passengers would need to check in online in order to confirm their flight. According to the carrier, 75 percent of passengers were already checking in online. Thus, doing away with check-in desks would reduce the overall costs to the 75 percent who were covering the costs of the desks but not using them. Another major airport cost is baggage handling. Ryan’s goal is for only one in five passengers to check their luggage. Reduced luggage handling will result in lower costs, which the airline has said it can pass on to consumers through lower seat prices. Additionally, in March 2009, there was a report that the company was planning to charge a £10 fee per return flight even if the passenger checked in online, printed out his or her own boarding pass, and did not carry a bag.
Like many airlines, Ryanair charges for onboard extras such as food and drink. An idea that Ryanair’s chief executive has referenced is the idea of instituting a toilet charge. Similar to some public restrooms, coin slots could be retrofitted to toilet doors, with passengers having to pay to visit the toilet. There is not a legal requirement to provide toilets onboard, so a toilet fee would be legal. Another suggested onboard cost reduction, however, raised the ire of many Ryanair pilots. In 2008, the company began to curb the discretionary rights of pilots to request extra fuel for safety reserves. From many pilots’ perspective, the restriction was a compromise on safety.
The chairman of the Air Transport Users Council has said that Ryanair is not doing anything illegal with respect to ancillary or optional charges as long as it is transparent about them. Ryanair’s website does provide a table of fees that includes such fee items as online check-in, payment handling, airport check-in, priority boarding, infant under two years in same seat, checked baggage, excess baggage, infant equipment, sports equipment, musical instrument, flight change, and name change. Thus the ancillary fee charges are transparent and noted for the passenger who navigates the website to identify the additional charges.
One area in which Ryanair did run into some pricing problems in the second half of 2008 was with respect to nonoptional costs, such as taxes. In 2007 the Office of Fair Trading (OFT) mandated that all UK airlines should include “fixed non-optional” costs in their headline fares. The airline’s website, however, was displaying prices excluding taxes and charges. This made Ryanair’s seat prices appear considerably more appealing to a price comparison shopper. While the airline attributed the pricing error to a system performance issue, which they were working with their software partner to rectify, the fact that the airline was breaking the law did not go unnoticed by competitors and news agencies, which had had many ups and downs with the company. While many could empathize with system performance problems, Ryanair and its pricing tactics had drawn the angst of too many to let the problem go unattended. Some suggested that the airline was, yet again, attempting to hide pricing charges. (Source: MKTG, 2nd edition, Nelson Education Canada, 2013)
Questions:
1. What is the relationship between demand and price for airline tickets?
2. While not violating any laws with the ancillary or optional charges, do you think Ryanair is pricing ethically?
