Pricing Strategy Interview Question - Pricing Strategy for Airline

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Pricing Strategy Interview Question

Pricing Strategy for Airline

Interviewer: Our client is an airline company which has purchased two new planes. It is planning to launch a new route from Bengaluru (BLR) to San Franscisco (SF) and vice versa. Can you please help our client decide the price for this route? 

 

Priyanka: Before I delve into the pricing part, I would like to ask some clarifying questions. 
Interviewer: Yes, please go ahead. 
 

Priyanka:  Is there any specific capability that the two new planes have?  
Interviewer:  Yes, their engine is made by the latest technology. 

 
Priyanka:  Are there any existing routes from BLR to SF as of now? Also, how much time does it take to fly from BLR to SF? 

Interviewer: No this is the first time. Normally it takes 1 day (24 hours) to fly from BLR to SF but since our plane is made with latest technology it will just take 2 hours. 

 

Priyanka:  Ok I will use the following strategies to price the seat: 

  • Cost based pricing 

  • Competitor based pricing 

  • Value based pricing 

As we mentioned, this is the first time we are starting on this route, so I am assuming there is no competitor information available. 

Do we have any data on the cost incurred, depreciation etc.? 

Interviewer:  Why don’t you start with value-based pricing first? 

 

Value based pricing 

 

Priyanka: I would like to consider value in terms of the following: 

  • Time saving  

  • Added benefits - Comfort, Food & beverages etc. 

Here the actual value derived from choosing our client’s service = Time saving of 22 hours. 

Interviewer: How will you quantify this value? 

 

Priyanka: The value of time will be different for individuals. Since it is a high-value item, I will consider its customers to be high-profile businessmen, celebrities, big politicians etc. 

Interviewer: Ok, you can assume our MD has to travel to SF to meet the CEO of another company and close an important deal. 

 

Priyanka: What is the salary of one day salary of our MD? 
Interviewer:  You can assume it to be 2 lakhs. 

 
Priyanka: What is the total cost of per seat in this flight? 

Interviewer:  You can consider it INR 45000. 
 
Priyanka: Lastly, what is the benefit from this deal? 
Interviewer:  This deal helps save the company 4 lakhs. 

 

Priyanka: Okay so the minimum price the MD would be willing to pay will be 2 lakhs. And the maximum price should be 4 lakhs 35 thousand. 

Interviewer: What do think will be more appropriate here? 

 
Priyanka: Given that it is a new route, and we want to gain some traction among the desired customer segment, we can start with 2 lakhs. 

Interviewer: That would be all. Thank you.  

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