Market demand in the air express market
Price elasticity refers to how responsive the demand for a given product or service is to changes in its prices given that all factors remain constant. From the case study, it is clear that market demand in the air express market is elastic. This is evidenced by the fact that by giving discounts of up to fifty percent off for its loyal clientele, Federal Express was able to gain a commanding share of the air express market which in turn led to the other major competitors following suit and offering discounts to their major clients.
Pricing Objectives and Pricing programs employed in the air express market
Different organizations pursue different pricing objectives and pricing programs at different times in the business life cycle to meet their goals. Companies can have several different pricing objectives and programs across services or products. Pricing and indeed pricing objectives play a big role in how potential and current clients view a company and can greatly shape perceptions either positively or negatively for the given business.
Pricing objectives are largely influenced by the price elasticity in the market as well as the individual company’s strategy. Federal express employed a high low pricing program whereby their listed prices are high but they then offer discounts to their main clients. The objective of this is to give their main clients the perception that they’re being offered incredible value for money. United Parcel Services on the other hand employs a penetration pricing strategy as evidenced by their list price of eight dollars and fifty cents for an overnight letter which is considerably cheaper than all the other major players in the air express market.
The objective of this is to gain business and market share fairly quickly from the other players due to the price advantage offered.
Recommended pricing programs
I would recommend a premium pricing program for Federal Express as they have several clear advantages over the rest of the players in the air express market. They are the only courier to guarantee delivery by 10:30 AM, offer computerized parcel tracking for their clients and also the only courier company that offers pick up services after 5:30 PM in the market. These are all features and services that offer tremendous value to the clients and as such they would be willing to pay more for the convenience that Federal Express offers through their unique offering. By playing to these strengths, Federal Express can comfortably charge a premium to its clients and also attract new clientele at the higher prices.
On the other hand, for United Parcel Services, I would recommend a different pricing program. The company has several distinct characteristics that make it stand out from the rest of the players in the air express market. The company upgraded its fleet by purchasing new Boeing 757 cargo planes which are cheaper to maintain than the old fleet, it is enormous in size and has built a solid core of regular parcel service users. These coupled with its strong cash flow and plans to set up a system to facilitate late pick up services similar to what Federal Express have put UPS in a good position to undertake an aggressive cost leadership pricing program. They can offer competitive prices to the market which would in turn lead to an increase in their market share.