In a previous e-mail (http://tinyurl.com/7tvls), Karl mentioned both the TOC
Thinking Processes and the Unrefusable Offer.
I posted on the former the other night (http://tinyurl.com/b2rxc), now for the latter.
An Unrefusable Offer (URO) is an offer that your customers can’t refuse and your
competitors can’t emulate.
For obvious reasons, the URO is often referred to as a Mafia Deal!
The creation of a URO requires an understanding of the dynamics of the following
- Your clients’
- Your competitors
The TOC Thinking Processes provide you with this understanding.
It’s then a matter of using some creative thinking to identify an offer that:
- Benefits you
- Benefits your clients
- Cannot be emulated by your competitors
Where the first two requirements are concerned, an understanding of your process
constraint (and your clients’) makes it easy to evaluate the incremental impact of various pricing options, payment terms, product features, supply arrangements, etc — for both parties.
Where your competitors are concerned, you will often find that they will be inhibited from emulating your offer by their current policies — which have been formulated *without* an understanding of system dynamics (in other words, policies that are based upon cost accounting principals).
Companies that have embraced TOC generally divide their markets into numerous
segments — each of which can be targeted with a URO. A segment is defined as a set of customers who are insulated — by way of unique requirements — from the wider market.
You can see both of these concepts applied by the airlines in their pricing strategies. It is conceivable that you could sit next to a person who purchased a ticket for $99 and not be bothered by the fact that yours cost $300.
The reason why you would be comfortable with this pricing differential is your fellow flier would have had to accept a set of conditions that you would have found unsavory. For example, their ticket probably would have been purchased weeks in advance, would be unchangeable and would have required a weekend stay-over.
Obviously, this flexible approach to pricing enables airlines to maximise their yield on their available seats. Seats are, of course, their constraint unit.
Traditional cost accounting methods would *never* endorse such an approach to pricing. For this reason, I would hazard a guess that the first airline to adopt this pricing method would have secured a lead over its competitors. (Perhaps someone on this list knows the history of dynamic pricing in the airline industry.)