Apr 30 2018

Understanding Value On The Fly

I read that American Airlines’ president said that airfares will go up due to higher fuel costs.

Strange.

Value is measured only by the customer. Do you care, when making a decision to buy, say, a car, whether the dealer is making a $1,000 profit, a $249 profit, or taking a $421 loss? No. You care only whether the price that you pay is less than or equal to the value to you of the car. So, why would the cost of fuel or the cost of coffee impact what you’re willing to pay for getting from Boise to Boston on American Airlines? It wouldn’t.

And, stranger.

Because, of all people, he should know that his costs have very little to do with the price of a ticket. That because the airline industry pioneered the concept of revenue management, adjusting fares on their flights millions of times each day, even taking into account the habits of a particular flyer, to whom they tailor their marketing message. On an average flight with 143 seats there could be 143 different prices.

But you don’t run an airline.

Each payor places a different value on your services. So, too, do facilities: Despite restrictions tied to fair market value for compliance purposes, FMV is a range and the value a particular facility places on you, your reputation, and your services impacts the level of stipends and other financial support.

Just like an airline does from its marketing perspective, take action to stimulate each customer’s value proposition. And then, price like an airline, customer by customer.

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

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