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Pricing Taken Too Far

In the early 1990s, I was involved with a company that faced a very competitive price environment. The company felt it could not increase the prices on its standard product. Instead, it raised its prices on the ancillary services it offered to all customers, though not all customers used these services. The company felt, at the time, that it could continue to raise these prices until the market took note and complained bitterly, or until its prices notably exceeded those of its competitors.

We now may have an instance, several years later, where that approach to pricing has begun to wear out its welcome. A recent article on cruise ship travel took two newspaper pages to help readers avoid the ancillary price increases on cruises.

The article noted that the advertised price for a particular cruise was an attractive $699. However, many customers of this cruise line end up paying over $1200 for that same cruise because of these ancillary fees. (See the Perspective, “Is Your Industry Right for Hostility?” on StrategyStreet.com.) These fees include port fees, trip insurance, airport transfers, automatic gratuities, internet access and others. The typical customer uses most, if not all, of these extra services and ends up paying a price for the cruise 70% over the advertised cruise price.

This is a good example of pricing going too far. If the cruise industry keeps this up, no one will believe their advertised prices. Nor should they. Those advertised prices bear no relationship to the real price the customer will pay for taking the cruise.

Posted 1/22/09

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