Pricing strategies that Virgin Blue Airline could use.

International Baccalaureate Business Studies

Virgin Blue

Virgin Blue is the creation of Sir Richard Branson, founder and CEO of the Virgin Group. The airline carrier was launched in 2000 by Sir Richard Branson and the Virgin Blue CEO Brett Godfrey, to enter the Australian market. Initially set up as a low fare carrier, the company only flew between Brisbane and Sydney. Since then, it has become Australia's second largest airline, catering for all major cities in Australia. Customers pay for their in-flight meals and drinks. To further cut costs, Virgin Blue uses a system of e-ticketing (a telephone and internet based ticketing system).

Describe three potential pricing strategies that airline companies can adopt when entering a new market.

Airline companies can adopt a really low price, so that they attract a lot of new customers and get a really original and good reputation. By entering the market with really low prices, the company will have a big advantage over the other companies that are already in the market for a longer time. Even though people are used to other companies, with low prices there’s a big chance that they will have a great success.

Penetration pricing

Companies using this strategy are usually trying to break into a market, so this would be the perfect strategy to ...

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Airline companies can adopt a really low price, so that they attract a lot of new customers and get a really original and good reputation. By entering the market with really low prices, the company will have a big advantage over the other companies that are already in the market for a longer time. Even though people are used to other companies, with low prices there’s a big chance that they will have a great success.

Penetration pricing

Companies using this strategy are usually trying to break into a market, so this would be the perfect strategy to enter a competitive market, already dominated by some big airline comapnies. Penetration pricing will cost the business revenue, but I the long term will pay off. Clients will be satisfied with the low prices and with keep their brand loyalty for a good time. In the future the company will have to raise their prices again, in order not to make a loss and maybe then they will lose some customers but not a lot.
Last but not least, companies could use Price discrimination

This is where a business charges different prices for different types of users (or segments of the market). Where there’s the holiday season, the company charges higher prices, due to its high demand and when the demand is low due to school and work time prices will go down to attract more customers. This helps the company to maximise revenue. During the peak many people are willing to pay a higher price to get where they want to get faster to a place, however, off season there’s no demand and people will be incentive to change their travelling dates, e.g visit their families in different dates. (6 marks)

Evaluate two possible pricing strategies that airline carriers such as Virgin Blue could use to increase their sales revenue.

To increase their sales revenue, companies could use Creaming strategy is a strategy that the company can adopt. Selling tickets at a high price, sacrificing high sales to gain a high profit, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of the original research into the tickets. High prices, meaning high quality, it will attract customers that are looking for luxury services, better food, better flight conditions, etc..
Premium pricing will keep the price of the airplane tickets pretty high in order to encourage favorable perceptions among customers, only due to the price imposed on the tickets. This strategy is made to attract the most desirable clients, theres a tendency for buyers to assume that expensive items are an exceptional reputation or represent exceptional quality and distinction from other flight companies.

(8 marks)