UMAIR ALI ARIF

REG: 70073121
SECTION: 7A
SUBJECT: MANAGING AIRLINES

 Topic
“Explain the concepts of price discrimination and product differentiation . Give example with
respect to airline pricing ?”

 Overview
There are two tactics are used in marketing and economics that are product differentiation and
pricing discrimination. Product differentiation can be defined as the method used to distinguish
goods and services of one company from another company’s goods and services. Whereas price
discrimination is a strategy used to determine the prices for the same goods and services between
two companies.

 Product Differentiation
Product Differentiation is a process to make a product more attractive to a specific target market
by distinguishing it from a competing product in the existing market There are three types of
product differentiation categorized as,
1. Horizontal: Horizontal product differentiation distinguishes a product based on one
characteristic of the product and consumers are not able to distinguish which product has
a higher quality.
2. Vertical: Vertical product differentiation is based on one characteristic of a product and
consumers are able to distinguish which product has a higher quality
3. Simple: Simple product differentiation is based on distinguishing a product on a
numerous amount of characteristics.
 Price Discrimination
This phenomena occurs when the same goods and services are sold at different prices from the
same company. In this case the company charge different prices for the same goods from
different customers. This can be charged on the basis of willingness to pay, financial need, or
geographic region.

 Example w.r.t to airline pricing

There are different types of products sold by airlines but the most important ones are passenger
and cargo transportation. for example, obvious that these products cannot be stored until the
demand is there to sell it to the customers. Therefore each seat which is not sold at the time of
departure cannot be sold later when there is more demand than the actual capacity of an
aircraft.The price for products is one of the key factors, depending on the price policy of an
airline, the pricing strategy ad-dresses certain groups of customers.The price of one seat in the
economy class is sometimes different from another depending upon the time on which the
passenger bought it, the baggage, schedule and many other things.