Spirit Airlines has a reputation for not having high customer satisfaction ratings after customers have flown with the airline. Previous customers will use the internet to warn potential travelers to expect poor customer service when traveling with Spirit Airlines. The airline has been rated as “the lowest-rated airline for customer experience by Consumer Report” (Kotler, Bowen, Makens, & Baloglu, 2016, p. 606). The initial flights offered by Spirit Airlines occurred in 1990 out of the Atlantic City Airport. In 2007, the airline started to offer flights for extremely lower prices than the prices offered by competitors. By offering a price that is significantly lower than the competitors, the airline does not intend to provide superior customer service, and the customers must be prepared not to expect quality. The expectations of a low-price ticket need to be “occupying a seat on a plane from one destination to another” (Kotler et al., 2016, p. 607). The airline offers up to thirty seats more than other airlines by setting the seats closer to one another on each row. There is no leg room, but the customers expect this because of the low-price fare. The airline believes that customers can have options if they are willing to pay additional fees. Spirit Airlines applies a fee to many amenities requested by customers such as printing boarding passes, asking for beverages or snacks, requesting more legroom, bringing carry-on luggage and more. The customer needs to be prepared to embrace Spirit Airline’s goal of “to get individuals from one destination to the next and more amenities can be bought during the flight” (Kotler et al., 2016, p. 608-609). Customers that support Spirit Airlines state the airline does provide satisfactory experience when the customer researches ahead of time and understands the policy and procedures offered by Spirit Airlines.
Spirit Airlines’ success is based on customer value-based pricing.
Spirit Airlines charges cheap ticket prices, and customers expect the low price offered by Spirit Airlines. Price is defined as “sum of values consumers exchanges for the benefits of having or using the product or service” (Kotler, Bowen, Makens, & Baloglu, 2017). The low-price fare Spirit Airlines ensure the customer receives the benefit of flying cheaply from one place to another. Spirit Airline does not hide the fact that not only is their price relatively lower than their competitors, but also their customer service is relatively lower than other airline competitors. Extra prices are leveraged by Spirit Airlines when additional amenities are requested by customers to enhance their flying experience. To receive beverages, snacks, and extra legroom during the flight, the customer must expect to pay additional costs which increase the price of the fare. Adding to the base fare is not required but depends on how badly the customer wants to enhance the flight experience. This method helps cut Spirit’s variable costs and increase profits by avoiding waste. The airline provides the customer with amenities only when the customer desires the amenity. Variable cost is defined as “vary directly with the level of production” (Kotler et al., 2017). The value-based pricing allows Spirit Airlines to be successful because customers will be willing to pay a lower price for the lower quality. Value-based pricing is defined as “uses the buyer’s perceptions of value, not the seller’s cost, as the key to pricing” (Kotler et al., 2017). The customer understands that Spirit Airlines does not promise high quality at a low price. For a more enjoyable experience, the customer must pay a higher price when adding on products.
Spirit Airlines employs good-value pricing because the core product offered is a cheap seat on its plane with fair service. Spirit Airlines also can use value-added pricing by providing drinks and snacks at an additional charge. The low-price fare allows for constant profit for Spirit Airlines because people will select the airline with the cheapest ticket. The gain happens for the airline because of the price-demand relationship. This relationship states “the higher the price, the lower the demand and the lower the price, the higher the demand” (Kotler et al., 2016, p. 298). Many consumers are willing to pay a lower price because the consumer decides if the benefit is greater than the price. Spirit Airlines has achieved this equilibrium because individuals can choose additional benefits with small incremental prices. The airline starts at a base price for a flight but allows for product cross-selling. Cross-selling is defined as “company’s other product that is sold to the guest” (Kotler et al., 2017, p. 297). The airline engages in product cross-selling by charging for checked luggage, more legroom, snacks and beverages, and entertainment. Spirit Airlines needs to generate enough revenue by offering the lowest price out of the competitors and up-charging for the extra products when requested. The pricing depends heavily on the consumer’s response during the exchange of the price for the value received. The customers understand that the experience might not be the most comfortable because of the low cost associated with the experience. This strategy gives the customer the option of paying a lower or higher price to fly from one place to another.
Lessons learned from Spirit Airlines is that price can affect customer decisions but so can poor customer service. Spirit Airline’s pricing strategy does differentiate it from the competitors. Many customers are price-sensitive because everyone desires a benefit. The customer is getting a benefit by selecting the lowest price offered in the airline industry. The one advantage that is lacking is satisfactory customer experience. Offering a product price that is significantly lower than the competitors does not mean that quality needs to be significantly substandard to a point where customers become irritated. Employees need to be trained to have a helpful attitude with the customers, and loyal customers will follow. Being known for only caring about creating revenue creates a negative image for the community. When a customer has an unfortunate experience, and the company does not try to resolve the problem, the customer will tell everyone to avoid the company. The customer’s opinion can make or break the future of the company.
Spirit Airlines pricing strategy is sustainable because people like low prices and Spirit Airlines can up-charge for other amenities offered. For years, Spirit Airlines has charged the lowest price in the airline industry and this created demand. The airline attracts customers that are price sensitive because the customer does not have to purchase extra products during the flight. The pricing strategy influences the customer “end-benefit” (Kotler et al., 2017, p. 301). Many price-sensitive customers that only purchase a ticket for the flight will feel the experience was worth the price. The customer feels that the low price of the flight is beneficial because they get a discount while other airlines charge a high price. The company is highly profitable airlines because of its ultra-low fares with the potential of additional revenue by up charging for other products that include beverages, legroom, checked luggage, flight changes and more. The cost for those amenities along with the base fare can exceed the price of the competitors, but it is at the option of the ticket holder. Upon entering the airline market, the company has been practicing “market-penetration pricing” (Kotler et al., 2017, p. 307). Spirit Airline set the lowest price available in the airline industry and has continued to keep the lowest price. The low price was sustained for three scenarios as “the market must be highly price-sensitive so that the low price produces more market growth, there should be economics that reduces costs as sales volume increase, and the low price must help keep out competition” (Kotler et al., 2017, p. 308). Customers enjoy the best deal which attracted many new customers to the airline.
The significant change that Spirit Airlines needs to implement is improving the positive customer experience. Individuals that read bad reviews on the internet about the company will persuade individuals to think twice about flying with the company. The airline does not need to ignore the bad reviews because this gives the perception that the company does not care. Acquiring loyal customers needs to be a top priority for the airline because it will generate revenue which will make shareholders happy. Individuals may not fly with the airline more than once when a bad situation happens because of the perception that the airline cares more about revenue. Airline prices become less critical has other airlines begin to match Spirit Airlines price so Spirit will have to improve customer service.
Spirit Airlines is a case study I shall remember as I start my career in the hospitality industry. If an individual wants to be part of a successful company, the company should offer competitive prices and excellent customer service. There is so much competition in the service sector that usually the difference between maximizing profits or dwindling stock, is the level of customer service provided. The cost to obtain a customer within the hotel is a significant cost. One way to combat customer acquisition cost is to offer loyalty programs. Loyalty programs encourage guests to direct book rooms with repeat room bookings. These loyalty programs also make the customer feel valued. Providing excellent customer service also makes the customer feel valued and entices the customer to use the hotel’s loyalty program. A customer should want to use your hotel based on positive experiences.
In conclusion, Spirit Airlines has remained true to its mission of providing the lowest price possible in the airline industry. Spirit Airlines has also realized that its customer service rating needs to improve to remain profitable. The competitors know that a positive reputation is required in the community to keep loyal customers. A commitment to offering better customer service and responding to unpleasant traveling experiences from Spirit Airlines could help keep loyal customers because a resolution was reached. Price sensitive individuals will gravitate to Spirit Airlines because of the low cost. Customers that have disposable income will not gravitate to Spirit Airline because they demand quality service and the fee is not a concern. As other airlines lower airfares, Spirit Airlines can only lower airfares so far while continuing to irritate customers. A smile by Spirit Airline employees can make a world of difference to use it.