Luxury Coach & Transportation

January 2014

Magazine for the professional limousine, charter and tour industry.

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PUBLISHERÕS PAGE I JANUARY 2014 Sara Eastwood-McLean Who Are You and What Is Your Purpose? What Segmentation Means to Your Pricing LOOK AROUND YOU AND YOU WILL SEE A sara@lctmag.com PRICING SHOULD BE BASED ON SUPPLY AND DEMAND AND WORKS BEST WHEN YOU REALLY UNDERSTAND THE DEMAND PIECE OF THE EQUATION. 8 totally changing environment in every sector of the travel industry. Just yesterday (it seemed) Airlines set pricing based on sections of the aircraft – namely First, Business and Coach Class. Today, pricing also varies on seat locations, leg room, boarding priorities and CLIENT PREFERENCES which have been mined to be monetized. "Segmenting" clients in other parts of the travel world such as the hotel industry is nothing new either. There are boutique and luxurybased hotels and mid-tier to economy hotels like motels and inns. Hotels know that not all clients are created equal. In fact, almost none of them are. Travelers have their individual likes, dislikes and preferences, more and more of which are being used to maximize yield. The practice of targeting different groups of travelers with different pricing strategies has grown in sophistication during the past few years in all travel sectors, with one exception – our industry! As customer relationship management systems extract more data from clients, revenue managers have found themselves armed with more ways to extract revenue. I recently met up with Doug Anderson from Limos.com (who I invited to talk at our upcoming show next month on segmentation and what that can do for this industry). Doug concurs that the limousine industry is behind the pricing strategy curve. While surge pricing is a new term that Uber recently made fashionable, it's far from a new concept. Pricing should be based on supply and demand and works best when you really understand the DEMAND piece of the equation. What a mid-level business traveler values may not be the same as the CEO when using your service. Uber targets the least discerning client – the retail public looking for instant gratifcation and something that beats standing in the rain while hailing a cab. Uber does get credit for changing the perception of chauffeured car service – some may argue for the better by making it more mainstream than a service only for the affuent and the elite. The DEMAND or rather the new EXPECTATION of the customer has also changed, thanks in part to Uber. Mobile apps that track a car give people peace of mind and make them feel better about chauffeured car service. Doug commented to me that, "Customers are less focused on how fast the car can get to them, LIMOUSINE, CHARTER & TOUR JANUARY 2014 than being able to track their vehicle from the point of booking it. I agree. When LCT surveyed the GBTA and asked them what they least liked about doing business with the limousine industry, the run-away response was the lack of consistency with on-time arrivals. Many of you may already be thinking about your client book and your inbound work and wondering how to segment them to better monetize the business. Here are some suggestions on pricing that I think are great for limo operators: 1. Stop marking up costs. The most common mistake in pricing involves setting prices by marking up costs ("I need a 30% margin"). While easy to implement, these "cost-plus" prices bear absolutely no relation to the amount that consumers are willing to pay. As a result, profts are left on the table daily. 2. Set prices that capture value. Manhattan street vendors understand the principle of valuebased pricing. The moment that it looks like it will rain, they raise their umbrella prices. This hike has nothing to do with costs; instead it's all about capturing the increased value that customers place on a safe haven from rain. The right way to set prices involves capturing the value that customers place on a product by "thinking like a customer." 3. Realize that a discount today doesn't guarantee a premium tomorrow. Many people believe that offering a discount as an incentive to trial a service will lead to future full price purchases. In my experience, this rarely works out (use Groupon as an example of what not to do). Understand that customers have different pricing needs. 4. Offer service versions. One of the easiest ways to enhance profts and better serve customers is to offer good, better, and best versions. 5. KNOW THY CUSTOMER and implement differential pricing. Again, some customers are willing to pay more than others and base the value of the ride only on what THEY care about, not what you want them to care. Differential pricing involves surge at rush times, on-demand responsiveness, amenities and type of vehicle. Since pricing is an underutilized strategy, it is fertile ground for new profts. The beauty of SEGMENTATION or client profling is that you can better understand who will appreciate PREMIUMLEVEL EXPERIENCE and who could care less. WWW.LCTMAG.COM

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