Case Study: Sterling

Airplane tickets for free: With its head office located in Copenhagen, Denmark Sterling (www.sterling.dk ) is Europe's fourth-largest low-cost airline, and the largest in Scandinavia, with both scheduled and charter flights to more than 40 destinations in Europe. Due to intensive pricecompetition Sterling commercial director Michael T. Hansen finds, however, that it will be nearly impossible to make a profit out of pure airtransportation in the future. In five years from now Sterling may be giving airplane tickets away for free. Instead, the airline will offer its customers a wide range of products, including car, boat, and caravan rental, tickets for sports events, concerts and theatres, and dinner and/or wine cruises in major European cities. Even the establishment of an on-board casino has been considered. Earlier this decade, Michael O’Leary, the founder of the lowcost airline Ryanair, has expressed the hope that air-plane tickets one day may be given away for free. Scandinavian Airlines (SAS) (www.sas.dk) is Sterling’s nearest competitor and also the largest airline in Scandinavia. The SAS Group is divided into four SBU’s, SAS Scandinavian Airlines Denmark, SAS Scandinavian Airlines Sweden, SAS Scandinavian Airlines Norway and SAS Scandinavian Airlines International, the last one being responsible for the SAS Group's intercontinental traffic with long haul routes to North America and Asia out of Stockholm and Copenhagen. In contrast to Sterling, SAS thinks that it will still be possible to make profit on pure airtransportation in the future. SAS seeks to follow a value-added pricing strategy by offering customers’ three different service levels on-board the airplane and also by offering a variety of other services, including a fasttrack service that ensures fast accomplishment of airport procedures. According to SAS marketing director Lars Bording SAS aims at targeting all market segments, not only the low price segment.

Questions for Discussion

1. Who do you think has the best chances for success in the future – Sterling or SAS? Why?

2. Compare the advantages and disadvantages of the Sterling and SAS strategies

3. What do you think would be an appropriate pricing strategy for an airline company? Why?

4. Are there any differences between developing pricing strategies for physical products and for services?

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