Supply, Demand and Easyjet - Assignment Example

Supply, Demand and Easyjet 2/28 Contents Question 3 Question 2……………………………………………………………………….4 Question 3……………………………………………………………………….6 References……………………………………………………………………… Question 1 3 Question 2 5 Question 3 8 References 11 Question 1 The marketing mix of a product comprises of the 4 P’s which are product, price, place and promotion. The idea behind the establishment of such a mix is that the customer gets the kind of product he wants, on the price that is feasible to him, at a place which he desires using the right promotion tactics. These variables of the marketing mix of a product require great insight into the customer requirements and desires and allow the businesses to produce and sell such products which create value for the customer (The Times 100). All the elements of the marketing mix of a product are equally important in making the product a success. One of these elements is the price of a product. Price is the only element in the marketing mix which provides revenue to the business, otherwise the rest of the elements of the mix generate costs for the firm. Therefore, it is a very important decision to be made by the marketers (The times 100). The role of pricing is crucial for the success of a product due to various reasons. Firstly, price is the most flexible element of the marketing mix of a product. In comparison to product design, promotional activities and point of sale, price can be changed more easily and readily by the producer. In an event of changes in competitor’s price, the first thing that marketers can do is to align their price so as to avoid losing the customers (Know this). The price of a product gives the consumer a picture of what value the product will create for him. Pricing decisions are to be made after extensive market research and evaluation of product costs. A very high price might entirely eliminate the chance of customers buying a product, whereas, a very low price might not generate sufficient profits for the business. Also, a low price for a high quality product might lead the customers to perceive that the product is not of sufficient value. Therefore, price should be set in a way that it covers the costs of the firm and positions the product in the minds of the customer as desired by the marketers (Know this). Price is an important part of promotional tactics employed by the marketers. Companies offer short term reduction in prices in form of deals in order to increase the demand for their product. However, frequent changes in the pricing would lead to fluctuating demand of a product, and would not allow the businesses to forecast their sales and profits to a reasonable extent. Therefore, pricing should be used as a tool for promoting the product, but in a balanced manner (know this). It can be said that pricing has a central role in the marketing mix of a product because it shows the products exchange value (Foxoll 1981). It gives the customer an impression of the quality of the product and plays the most important role in how the customers position the product in their minds. Therefore, marketers should pay equal attention to this element of marketing mix in comparison with other the other three elements. Question 2 Easyjet is one of the leading airlines in Europe. It operates over more than 500 destinations will about 200 aircrafts, 8000 employees and 55 million passengers. It promises to provide quality services to its customers with safety, teamwork, pioneering, passion and integrity. Following are the various prices of Easyjet tickets against different departure times (Easyjet). Table 1.1 Departure Fare of flight 1 Fare of flight 2 Tomorrow £200.98 £175.98 In 1 week £125.98 £150.98 In 1 month £104.98 £81.98 In 3 months £50.98 £62.98 Graphs 1.1 and 1.2 Easyjet has on average two flights daily on any given period. The fares of two flights are slightly different but there seems no pattern as to why later flights are inexpensive or expensive than earlier ones. However, there is a noticeable difference in the fares when departure times are different. The graph shows that as the time left in departure increases, the fares reduce. The most expensive fare is of £200.98 for the earliest departure time, that is, tomorrow. On the other hand, the cheapest fare of £50.98 is for the last departure time which is in three months. Therefore, there is enough evidence to conclude that the price of ticket reduces the earlier the flight is booked with respect to the departure time. The model of demand and supply is a key to how prices are set by any company, including Easyjet. When the customer needs to get a ticket for tomorrow’s flight, he/she is keen to get a seat as there is time constraint for the customer. The options for the customer are limited. Therefore, earlier the departure time, higher is the willingness of the customer to pay a higher price in order to get a seat booked. This causes the demand to be inelastic. The demand is inelastic when a change in price causes a lesser percentage change in the quantity demanded. Therefore, the demand is less responsive to price change. Therefore, ceterus paribus, the producer has the ability and feasibility to charge a higher price and receive higher revenue. In this case, the supply of flights is assumed to be inelastic in the short run, which means that no matter what price the producer charges, the customer will have fewer options and will be likely to pay the price which is charged by the producer. The nature of the supply curve will not let the quantity demanded to fall by a large percentage, even if the price is increased to a large extent. This is why the fares of earlier flights are higher than the flights which are booked long before the departure date. As most airlines base their pricing strategy on this model, the customer is unlikely to benefit much by changing the airline. Although customer demand is inelastic when the departure date is near, the producers should also take other factors into account such as the prices and availability of substitutes which also affect the nature of the demand curve. Question 3 British airways can trace its heritage back to when civil aviation was pioneered during the World War 1. It was founded in August 1919, and since then it has developed a huge fleet of aircrafts and high quality passenger services ranging from air travel to luxury holidays and travel insurance. Following are the fares of British Airways tickets against various departure times (British Airways). Table 1.2 Graph 1.3 The graph 1.3 shows that higher the deviation between the booking time and the departure time, lower are the fares charged to the customers by British Airways. The table 1.1 shows the highest fare of £217 for the earliest departure time and the fare for the farthest departure time is almost half the highest fare. EasyJets fare prices also show a similar pattern. The graphs 1.1 and 1.2 show how the fares of EasyJets tickets reduce to a considerable amount as the departure time changes from tomorrow to in three months time. The model of demand and supply would have been applied in the pricing of British airways tickets in the same manner as it was applied in the case of Easyjet. Nearer the departure time, the customer is keener to purchase the ticket soon, and in face of few options available, the customer is likely to pay a higher price in order to get the seat booked. This shows that the inelasticity of demand for air tickets that are needed sooner, give the flexibility of charging a higher fare to the customer. Another similarity in the marketing of Easyjet and British airways is that they both offer promotional deals and lowest fares of the month for a particular day or time period. This is an example of how pricing as an element of marketing mix can support promotional activities. Even though the kind of demand faced by Airlines is not differentiable to a very large extent, some differences exist between the pricing of the two airlines. The fares of British Airways are higher than those of Easyjet. The lowest fare of British airways is £118 while for Easyjet it is £50.98. This difference in the pricing of the two airlines can also be attributed to the demand and supply model. Easyjet airways mostly have two flights on a given date for a given route. Therefore, the supply of flights by Easyjet is higher than that of British airways. Keeping the demand consistent, a reduced supply leads to a higher price of any product. The equilibrium price of the fares of British airways is thus higher than that of Easyjet. Easyjet also uses a pricing technique called psychological pricing which is not used by British airways. It shows ticket price as for example, £120 99 cents. Even though the fare is almost equivalent to £121, the customer perceives it to be lesser .Although, the pricing techniques of Easyjet and British airways seem similar, they significantly differ in various aspects. References British Airways [online]. [Accessed 28th February 2012]. Available from: . EasyJet [online]. [Accessed 28th February 2012]. Available from: . Gordon R. Foxoll (1981). Strategic Marketing Management: Taylor and Francis. [Accessed 28th February 2012]. Available from: . Know This [online]. [Accessed 28th February 2012]. Available from: . The Times 100 Business Case studies [online]. [Accessed 28th February 2012 ]. Available from: . Read More