disaggregated pricing (part 2)

When my kumpadre Ed Tiambeng, a seasoned traveler, was penalized for re-booking his flight to Tacloban even if it was one week ahead of the original schedule, he got smoldering mad. From the smoke of madness, he came up with a not-so-bright idea of calling his congressman to propose a bill that will ban penalties for rebooking if the ticket was rebooked at least two days before the flight.

It is a not-so-bright idea because the same rule will apply to all airlines. The airline with the advantage will still keep that advantage no matter how small that is. It is also not certain if government will have the facilities and ability to regulate this option.

Michel Roberts, my favorite strategist, argues that a market leader would always have the advantage if what the competitors did was merely to try to out-compete the market leader. If they exploit the weakness, if there is any, the market leader would have the size and muscle to adjust and overcome the weakness. If they compete head-on focusing on the strength, there is just no way that the market leader would lose. Roberts consider the SWOT approach as irrelevant for this reason.

Herbert Hoover, the 31^st president of the United States servicing from 1929 to 1932, advocated and pushed for efficiency management. That framework suggests that government is inefficient and should be less visible in sectors where the private sector is capable of producing the desired capacity. He favored a strong government and private partnership. For all his failures at the onset of the great depression, Hoover presented a solid governance principle. We should not allow government to spread its tentacles.

Instead of seeking for a legislative initiative, competitors should consider this failing as an opportunity to create its own arena of competition. It is possible that Cebu Pacific’s system was designed to support the disaggregated pricing. No Board would ever support the mothballing of a huge investment based on a speculative notion. My best guess is that the Board will vote to sustain that strategy if it comes to that. On the other hand, other airlines can easily sway to a new system with less complication and with nothing to lose. If they do, they have my attention and my money.

One possibility is for other airlines to create a system that will credit delays in flights to penalties for rebooking. This approach has two benefits. First, it would endear the airline to passengers who have suffered so much from the disaggregated pricing scheme. Second, it puts some credibility in the airline’s mouthful of promises.

A more radical approach is the pizza approach. Pizza not delivered on time becomes free. Passengers pay only if the flight leaves and arrives on time. Passengers pay 50% once the plane departs on time. The balance is payable on arrival according to on-time performance. Hah, that would be one super strategy. Of course, the only way this may be implemented is if the system supports it. If an airline has a working system in place that supports a different approach, like Cebu Pacific, it would take more than a normal effort to calibrate if at all that is possible. If none or a different one exists, that airline is more flexible.

If you have other ideas, email to abfontanilla@yahoo.com.

disaggregated pricing

Not too long ago, air travel, both domestic and overseas, was associated with excellent in flight service. Airlines then served good food, provided newspapers, had user-friendly booking and re-booking services, and maintained a ticketing system that was quite elaborate and service oriented. I recall that in that setup, all costs were paid up front. It was designed to cater to the business travelers who were considered more discriminating and demanding. Calibrating the services to what business travelers expected set the standards for air travel. And that was one super standard.

To keep operations viable, airlines front loaded the airfare to include all these amenities and expected services even if on some occasions these services were actually not utilized. Front loading the airfare, or what I call aggregated pricing, is based on the assumption that air travel needed to be comfortable and compensate for the stress related to air travel. It was also based on the assumption that air travelers were faced with imperfect conditions such as scheduling and carry-on baggage. Because of the front loaded airfare, the cost of air travel appeared somewhat prohibitive to many travelers. Many took to other travel modes such as land and sea travel. Back then, air travel, sea travel and land travel co-existed and were not threats to each other.

Cebu Pacific reinvented air travel in the Philippines. It disaggregated airline services and prices by cutting the air fare to its basic minimum. Cebu Pacific even ventured to sell seats at very attractive promo rates to fill up the capacity during months when travel was expected to be at its lowest. Components of the air fare such as food, newspaper, re-booking, check-in baggage, insurance and other items were disaggregated and charged only on demand of the specific service. I call this disaggregated pricing, the opposite of aggregated pricing. Cebu Pacific compensated for the scaled down services with in flight entertainment courtesy of the flight crew at no additional cost to the airline.

Disaggregated pricing is a form of radical pricing but quite different from the radicalized pricing strategies adopted by successful ventures such as Google, Yahoo and Wikipedia which provide the basic service and earn revenues from volunteered payments and democratized options. The strategy must have been successful for Cebu Pacific. It now claims to be the number one airline in terms of passengers flown and has aggressively added capacity through the years.

The strategy employed by Cebu Pacific also restructured the travel industry. Sea and land travelers saw the economics of disaggregated pricing and started traveling by air. Employees and students who in the past could not afford to travel domestically and overseas found the upfront and downloaded cost low enough to travel. My employees have pre-booked their flights way ahead and have been traveling at least twice a year to local and overseas destinations. Domestic tourism improved. Even travel to overseas destinations covered by the pricing strategy increased.

Disaggregated pricing had many social and market benefits. It was a good strategy. I thought so too until the realities of imperfect information started setting in.

My meetings in Cebu and Catbalogan on October 21 and 22 were cancelled right after I booked my flights online. It was too late to cancel or re-book the flights so I decided to go ahead with the trip by setting other appointments. Since the original flight back to Manila was two days later, I was able rebook that flight from October 23 to October 29. Well, for that rebooking, I paid a penalty of P934. On the way to Tacloban airport on October 23, I realized that I rebooked the flight to October 29 and did not change the flight back to Manila to October 23. Good thing, seats were available. I had to pay an additional P1,500.

For that multiple destination from Manila to Cebu to Tacloban to Manila, I had to pay a total of P9,606.56 or around US$223.41. While the basic fare was only P5,494, I had to pay taxes and fees of P696.76, web administration fee of P106, travel insurance of P720, seat reservation of P224, SMS reminder of P5, security aviation fee of P15, and total penalty of P2,440.80. That was a lot of money for a local trip with only three stops. No newspaper. No food. Only cheap live entertainment from the flight crew.

So, is the disaggregated costing less costly? Not quite. Next time you book, check all the details.

The Pinoy Dream

(Delivered during the Philippine Junior Marketing Association's 2010 Governor’s Pulong on 19 June 2010 at the Southville Foreign University Auditorium)

Let me echo the proposition of Dr. Paul Dumol -- that common dream is for the Philippines to become truly a nation. A nation, according to Dumol, is a community of responsible citizens who deeply love their country. Following this definition, he says that the Philippines is not yet a nation.

It is a nation in progress. This argument, which I consider a breakthrough in development administration, successfully paraphrases the struggles and pitfalls of Philippine development or underdevelopment. As a nation in progress, the Filipinos are in various stages of developmental maturity. Some have embraced the concept of nationhood. They manifest a commitment to the common good.

Gawad Kalinga founder and Ramon Magsaysay awardee Tony Meloto is an example of a Filipino committed to the common good. His dream is to build homes for the homeless and to provide a community for those seeking to find one. Efren Penaflorida, a hero in my book, is another Filipino committed to the common good. He took the responsibility of educating street children through his mobile classroom. He knew that education will liberate these children from the bondage of poverty.

However, there are many more amongst us who stay at the level of regions. They are committed to the goals of their respective regions. That attachment is so strong that it is often mistaken as a sentiment for the common good. In countries where there are many overseas Filipinos, we see multiple regional blocks.

In Chicago where my brother lives, he is a member the Quezonians. He is also a member of a group of Filipinos born and raised in Lucena which is a part of Quezon. There are associations of Kapampangans, Ilokanos, and many more ethnic groups. In the last election, among the party list winners are ethnic groups – Ako ay Boholano, Ako ay Ilokano – overshadowing marginalized groups. When the President of the country comes from one particular region, many of the political appointees will almost certainly come from the same region regardless of qualification.

Still many others are at the level of towns, cities or provinces. Their loyalty, behavior and engagements focus on hometown traditions and aspirations. Everything else remains abstract or insignificant. Thus, we find many overseas workers expediently associating with town mates but with little interest in networking with other Filipinos.

I often hear about this story that when Boholanos apply for a visa, chances are that they would get one. Because it is well known that Boholanos would always go back home to attend their town fiesta. I have not heard of that same passion and commitment to visit the Philippines on Freedom Day or on important national events. There are still those who are at the level of communities or barangays. They are very clannish. Very supportive of the family and the community where they live. Outside of this enclave, they break the rules. Family and business interests define social and political standards. Anything outside these interests is inconsequential.

When the common good is at stake, citizens tend to behave according to the patterns symmetrical to their level of developmental maturity. Dumol says that there is nothing wrong with this natural progression. From family, to a community, to a town, to a province, to a region and then to a nation. After all, one cannot love a country if he or she does not love the region. One cannot love a region if he or she does not love the province.

This natural progression is, in its rawness, time dependent. Like wine, it has to age according to a time-related pattern. We are A NATION YET IN PROGRESS. Not there yet. But on our way there. The questions that beg to be answered are: Where are we on the road to nationhood? How long will it take for us to become a nation? Dumol’s best estimate, if we don’t do anything, is that it will take at least four more generations for the Philippines to become truly a nation.

It does not mean, however, that the velocity of developmental maturity remains a function of fate. It is possible to intervene and hasten the process of maturity. This is what happened in Singapore, Malaysia and other relatively young countries that are now more developed.

Ordinarily, we see these expressions of developmental maturity when there is a crisis or call for action that demands concern for the common good. At the onset of the 1997 crisis, Koreans lined up to donate their jewelries to forestall a national crisis. Even if it was only a masterful attempt to camouflage mistakes of the past, it demonstrated concern for the common good.

I met an Indonesian, considered the second most powerful person in Indonesia, who left his high-paying job in a big corporation to spearhead the rebuilding of Aceh after it was devastated by a natural disaster. He considered it as a responsibility and a calling. Today, he heads the performance governance team that orchestrates the performance of the bureaucracy.

Sometimes, we also see these expressions in the form of a natural outburst of love for country. Artists Edd Aragon, who is based in Australia, directed me to PinoyCentric, a web site styled precisely to express that pinoyness – respect and love for whatever is Filipino. PinoyCentric is “a Chicago-based but Pinas-grounded arts, culture and appropriate sciences web publication providing features and information about Filipinos worldwide.

The staff of contributors is made up of Filipinos and friends with diverse backgrounds brought together by our roots in the old country, a spirit of creativity, adventure and a desire to share our stories.” It invites readers to look at this creative intersection as a celebration of the resiliency and success of Filipinos wherever destiny brings them to shake off the fault of our political system. PinoyCentric demonstrates that feeling which is distinctly native, naturally pinoy – an outburst of love for country. The tagline “Pinoy Centric: All things brown” says it all.

Perhaps, we can learn from Pinoy artists who have a way of digging deep into their ethnic roots to create new patterns, new ideas. If we can find enough of these expressions, we may discover that nationhood is probably just around the bend, not three or four generations away as suggested by Dumol. I see that same expression in your theme “A Filipino Legacy” and in the way that you creatively articulated your theme. For this, I congratulate you. But it must not end with a theme and a poster. That expression must be translated into action.

This is the challenge that I would like to present to this forum – to find an expression or expressions that will help in our journey towards nationhood. Every bit of expression helps. We are at the edge of the current generation of baby boomers. This is a generation that had been at the forefront of a tremendous economic growth and technological changes.

About to replace that generation is the generation Y or Z – that is you. Bruce Tulgan (2009) describes the GenY as being “more difficult to recruit, retain, motivate and manage than any other generation to enter the workforce.”

But this will also be the most high-performing workforce in history for those who know how to manage them. I cannot tell you why. You have to tell me why. I think you know. Being at the edge of a major shift in generational leadership, you inherited the responsibility of transforming this nation from a tailender in growth and social development to a leader.

You have the confidence. Connectedness. The advantage of technology. Global awareness and exposure. And the tools for creating an impact. I challenge this forum to find an expression that will fuel the Filipinos’ love for their country. What would such an expression be, you may ask? May I propose some possible avenues for such an expression.

First, Promote the Rule of Law Be involved in promoting values that emphasize the importance of the rule of law. About a year ago, I was part of a group that went to participate in a session that defined the vision of a Southern City. One of the participants was the author of a book “12 Little Things Every Filipino Can Do To Help Our Country.”

After hearing him speak and elaborate on what he wrote in the book, I was just so amazed to realize that, indeed, little things mean a lot. To those who grew up in this environment, you will find some of these little things quite amusing or even comical. For example, his first recommendation is for us to follow traffic rules. One of the required readings in Apologetics in the Seminary is the book “To Each His Own.” That is precisely what traffic is like in the Philippines.

Yesterday afternoon, I was driving along Quirino Avenue coming from Philippine Christian University on my way to the office in Makati. All of a sudden, a young boy, probably in first grade, zoomed to the front of the car barely missing the bumper of my car. I cannot blame this little boy. This is what sees every day.

Now that school days are back, so is double or triple parking and needless violation of traffic rules. These things happen, and I am sorry to say, in schools. Drivers double park on the street waiting for the senoritos to step out of the gate and straight to the car. No waiting time. It takes commitment, dedication, a deep sense of patriotism and a life of Christian values to be able to follow traffic laws.

Benjamin Franklin said that “the best way to build a dream is by attending to the little things that comprise it. Its foundation is in the little details; its beauty in the fine points.”

Second, help build a better image for the Filipinos: I have always wondered how the Filipino is looked upon in the global world. I have heard of many stories. But it takes one’s own experience to formulate a picture of the Filipino in this globalized world. Let me mention five based on my own personal experiences.

First, the Filipino as a traveler and security risk. You find a Filipino wherever you go. This is a 20^th century spectacle. Travel trends indicate that this will continue to be so in the 21^st century. Filipino travelers are generally labeled as a security risk. There are many anecdotes on this tag. I have personally experienced this special treatment everywhere: in America, in Asia and in Australia. Unfortunately, that tag seems to be at work in the Philippines as well. Putting on a blazer and a fancy hat does not change this tagging a bit.

Second, the Filipino as a good singer and nothing else. I am proud of one part of this label. It is distinctive. We share this distinction with very few ethnics in the world. Sadly, it is the only thing that stands out in the minds of business colleagues and friends from other countries. After business meetings, when we break for dinner or cocktails, the microphone is passed on to me, with everybody, from the Koreans to the Europeans, expecting me to deliver a grand performance.

Third, the Filipino as a good worker but low-wage earner. This is puzzling to me. The world demand for talent exists. There are few ethnics that can match the resiliency and patience of the Filipino worker. I could never imagine a two- or three-job rotation. But many Filipinos, in countries where the demand for workers is high, willingly take two to three jobs a day. They work hard throughout that rotation every day and every hour of the day. Despite all that, the Filipino is, generally and arguably, known to receive lower wages. While the average family income of Filipinos in the U.S. is above average, a job-for-job comparison suggests that the salary can improve.

Fourth, the Filipino as an entrepreneur but low-tech. I am sure this is image-driven. But image has a reality of its own. This is how we are normally positioned in the minds of business people from other countries. We populate the web with business inquiries. We compete with many countries in clogging the web space. In my industry, we are ahead of most countries in requests for evaluation copies and samples. But we stand dead last in implementation.

Fifth, the Filipinos as hospitable people but undeserving of a visit. I have represented an American company in the Philippines for the last 15 years. Each year, we have Asian and World meetings. Each year, a poll is conducted to determine site preferences. The Philippines is never ever mentioned. The Filipino as an international host no longer exists in the minds of business people: An airport that needs improvement. Convention centers that do not meet world standards. Traffic and pollution. Poor time management. These are some top-of-mind remarks.

The Filipino, in a global economy, has to be purposely repackaged. There must be a conscious effort to determine how we are viewed by stakeholders around the world and to re-engineer the Filipino image. The first step is to validate what it is that sticks in the mind of people around the world and put these into some kind of an actionable framework. Image is a powerful differentiator. The second step is for all of us to rise above these limitations and create a new Filipino image.

Third, participate in socially responsible enterprise development

According to Paul Zane Pilzer, a noted writer and economists, individuals will take the responsibility and receive the rewards for their own continuing professional education. There will be a return to the entrepreneurial spirit of the craft unions; individuals will once again be compensated for their performance and innovation, rather than for their duration. And there will be the emergence of a new benefit structure; individuals, not organizations or governments, will begin to take responsibility for their own retirement, health care, and the security of their families.

I can break up this message from Paul Pilzner in two parts.

First, be an entrepreneur.

Second, be a responsible entrepreneur.

Enterprise development is so close to the discipline of marketing. In marketing, we learn to create new ideas, new products that will satisfy specific needs of customers. As marketing students and future practitioners, you will be most prepared in tackling the challenges of enterprise development. Keep that kind of a mindset. Train yourselves to be employers, not just as employees.

This must be done with a social purpose. The Philippine Marketing Association’s theme for 2010 “Marketing as a Growth Accelerator” promotes marketing with a social purpose. Marketing with Meaning. “When your marketing is meaningful, the marketing itself adds value to people’s lives, whether or not they immediately buy what you’re selling.(Bob Gilbreath, 2010). Marketing as a growth accelerator can only have substance if it yields something that is meaningful – to people, to a community, to a country or to the world.

I congratulate the governors and officers of the Philippine Junior Marketing Association for organizing this event. You have been chosen to lead. You have opted to take that responsibility to lead.

Thriver's Club

This is short commentary which I delivered during the book launch of "BEYOND SURVIVAL: How to Thrive Amidst Life's Inevitable Crisis" on 24 April 2010 at the Best Seller in Robinson's Galleria, Ortigas Center.Before this occasion, I met Roger only once. That was during the General Membership Meeting (GMM) of the Philippine Marketing Association where he keynoted the GMM and Agora Youth Awards.

He talked about life’s tragedies including his own. In about 30 minutes, he presented a well-argued thesis – that people can thrive in the face of even the harshest challenges.

Silently, as he discussed the foundation of his presentation, I thought that he should write a book on this topic and share his thoughts and experiences to others, not only to those who have the opportunity to attend his training sessions.

In fact he did. Not long after, a common friend, Gwenn Galvez, sent me a text and asked me to attend a book launch to give my comment on the book which Roger wrote precisely on the topic that he presented in the GMM. Gwenn sent me a copy of the book. I was glad I said yes, because I got a copy of the book and had the chance to review and learn from the book. These are my random thoughts.

There are books that dwell on opportunities. There are books that dwell on crises or problems. The book written by Roger attempts to paint a clear picture of life’s never-ending struggle with crisis and how people can turn every crisis situation into an opportunity.In this book, Roger tells us that facing life’s challenges is all about attitude. It is all about mindset. Roger substantiates his argument with very interesting anecdotes and well-researched essays. More than that, he concludes his discussions with a ‘how to’ or a user-friendly template for thriving in a crisis.

Growing up, I used an inspirational message to guide me through every crisis or difficulty. I forgot the author who wrote this message which became my anchor whenever I faced life’s challenges – “for every adversity, there is an equivalent seed of benefit”. That message is well-articulated in Chapter 4, “from helplessness to hopefulness. If this book was written earlier and I had the chance to read it, I would have gone through all these difficulties with more ease and probably with greater success.

There are four things I immensely enjoyed about this book.

First, Roger spins the challenge of managing crisis into a piercing simplicity. He successfully presents crisis management as a process. A process can be learned. It can become part of our routine. It can become part of our armamentarium for dealing with problems.

I believe in the saying that “problems are to the mind what exercise is to the muscles” (internet-circulated, author unknown). Roger puts this maxim into an understandable concept. He says in Chapter 6, “use it or lose.”
Second, the book Beyond Survival is prescriptive and may be used as a guide. It recognizes the need for a sustained and continuing application. Roger’s book started with the reality that we deal with crisis every time. Indeed, there are many occasions when we can apply Roger’s guide for thriving and flex our muscles to handle problems until the guide becomes part of routine.

Roger sums up his guide into something everyone can remember. C-R-I-S-I-S. C to create new possibilities. R to reaffirm your core beliefs. I to invent the best future. S to summon your inner resolve. I to inspire yourself and others. S to seize the moment.

Third, it is easy reading. In one part of the book, Roger encourages readers to do whatever they wish with the book. Underline key points. Fold an important page. Dog-ear something for easy read-back.

A reader does not have to do all of these things. Roger made it a point to highlight the key thoughts. By design, the important concepts have been highlighted for reference and for quick reading. One can do a second reading by just going over all highlighted concepts.

Fourth, I sincerely belief that Roger wrote this book from the heart. There is a saying that “the best way to succeed is to follow the advice you give to others.” From Roger’s presentation, he did and is doing what he advises his readers to do. Walk the talk. That is the unwritten rule for consultants. That should also be the rule for writers and speakers.

With his experience in the university of life and gift for simplifying complex thoughts, perhaps Roger can write about how people can manage unexpected success. With this wonderful book, I am sure that Roger is now experiencing unexpected popularity and success. By this time, he must have synthesized the process of managing unexpected success.

My advice to readers -- buy the book. Available in all National Bookstore, Powerbooks and Best Seller outlets.