Comments on: The "Because I Can" Surcharge http://www.leanblog.org/2006/05/because-i-can-surcharge/ Mark Graban's leanblog.org - Lean Healthcare, Lean Thinking, Lean Manufacturing, Toyota Production System Thu, 09 Feb 2012 15:26:57 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Mark Graban http://www.leanblog.org/2006/05/because-i-can-surcharge/#comment-500 Mark Graban Sat, 06 May 2006 23:05:00 +0000 http://leanblog.bigbigdesign.net/2006/05/the-because-i-can-surcharge/#comment-500 I agree that airline ticket pricing is complicated. I think my biggest beef is the justification of a veiled price increase. I think it sets a bad example for other businesses who follow that, such as the example of the caterers and the lawn service businesses in that one article. I agree: if it's a price increase, just increase the price.<br/><br/>Even when it's a cost increase, not a surcharge, many businesses tell their customers "sorry, our costs went up, so we have to pass along the price increase." If you have any choice as a customer, you shouldn't accept that rationale. It's the same idea.... "we're raising our prices because we can" is what's really going on.<br/><br/>It's all about who has the power in the supplier/customer relationship. If you're a Tier 1 supplier to GM (or Toyota), you're never going to get away with "our costs went up, we have to charge you more." The customer has the power in that relationship.<br/><br/>Thanks for the comment, curiouscat, and thanks for your excellent blog.<br/><br/>http://evop.blogspot.com/2006/05/lean-thinking-misconception.html I agree that airline ticket pricing is complicated. I think my biggest beef is the justification of a veiled price increase. I think it sets a bad example for other businesses who follow that, such as the example of the caterers and the lawn service businesses in that one article. I agree: if it’s a price increase, just increase the price.

Even when it’s a cost increase, not a surcharge, many businesses tell their customers “sorry, our costs went up, so we have to pass along the price increase.” If you have any choice as a customer, you shouldn’t accept that rationale. It’s the same idea…. “we’re raising our prices because we can” is what’s really going on.

It’s all about who has the power in the supplier/customer relationship. If you’re a Tier 1 supplier to GM (or Toyota), you’re never going to get away with “our costs went up, we have to charge you more.” The customer has the power in that relationship.

Thanks for the comment, curiouscat, and thanks for your excellent blog.

http://evop.blogspot.com/2006/05/lean-thinking-misconception.html

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]]> By: curiouscat http://www.leanblog.org/2006/05/because-i-can-surcharge/#comment-499 curiouscat Sat, 06 May 2006 21:05:00 +0000 http://leanblog.bigbigdesign.net/2006/05/the-because-i-can-surcharge/#comment-499 I don't think I agree with the logic here. Lets say my airline company has been charging $109 for flights but gas price increases are dramatic. At $109 I had optimized my total profit (lets leave out all the complications of varying priced seats). It might well be that due to rising gas prices I can raise the rate to $119 and maximize profits.<br/><br/>If I tried that before competitors might have undercut my price and taken away customers but at these gas prices they don't. That is the supply side of the market. Also on the demand side driving (and perhaps trains, buses...) is now more expensive and therefore the substitution options for flying are effected by gas prices. And part of the increase in gas prices is due to increased demand for gas, way which is correlated with increases in demand to fly (business is happening people have incentive to travel to make deals, go to conferences...). So given increased demand for gas pushing up gas prices it is likely the demand may well allow my airline to charge higher prices (the market demand will be willing to pay those increased prices).<br/><br/>The market price for airline tickets varies drastically over even short periods of time. Most other things (cars, computers, chairs, milk...) do not vary nearly as much. I think this makes looking at airline flight prices and "market prices" more confusing than in most other cases.<br/><br/>Hotel rooms might be a good comparison in terms of variation of market price. Usually the entire city will see hotels raise prices together as each hotel sees the market will allow them to raise prices without their competitors taking away too much business. But just because they get $20 more a night now doesn't mean they failed to get that 2 months ago. The market may have changed.<br/><br/>I do agree airlines charging "fuel surcharges" is of no value. They should just say what the price is. <br/><br/>And I 100% agree that business should focus on improvement and lowering costs not just passing on price increases. And I agree <a HRE="http://evop.blogspot.com/2006/04/airline-quality.html">airline management is lame in general</a>. I don’t think I agree with the logic here. Lets say my airline company has been charging $109 for flights but gas price increases are dramatic. At $109 I had optimized my total profit (lets leave out all the complications of varying priced seats). It might well be that due to rising gas prices I can raise the rate to $119 and maximize profits.

If I tried that before competitors might have undercut my price and taken away customers but at these gas prices they don’t. That is the supply side of the market. Also on the demand side driving (and perhaps trains, buses…) is now more expensive and therefore the substitution options for flying are effected by gas prices. And part of the increase in gas prices is due to increased demand for gas, way which is correlated with increases in demand to fly (business is happening people have incentive to travel to make deals, go to conferences…). So given increased demand for gas pushing up gas prices it is likely the demand may well allow my airline to charge higher prices (the market demand will be willing to pay those increased prices).

The market price for airline tickets varies drastically over even short periods of time. Most other things (cars, computers, chairs, milk…) do not vary nearly as much. I think this makes looking at airline flight prices and “market prices” more confusing than in most other cases.

Hotel rooms might be a good comparison in terms of variation of market price. Usually the entire city will see hotels raise prices together as each hotel sees the market will allow them to raise prices without their competitors taking away too much business. But just because they get $20 more a night now doesn’t mean they failed to get that 2 months ago. The market may have changed.

I do agree airlines charging “fuel surcharges” is of no value. They should just say what the price is.

And I 100% agree that business should focus on improvement and lowering costs not just passing on price increases. And I agree airline management is lame in general.

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