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Journal of Marketing and Operations Management Research

ISSN: 1949-4912
Volume 2, Number 4
Nova Science Publishers, Inc.

EXPLORING THE RELATIONSHIP BETWEEN PRICE


AND SERVICE QUALITY IN AIRLINES SERVICES
P. Kyriazopoulos and Irene Samanta
Graduate Technological Education Institute of Piraeus, Greece

ABSTRACT
Pricing and differentiation in service through a strong brand name are effective ways
for a competitive advantage and the changes in customers behavior. This article is a
theoretical approach on the concept of pricing and service quality. The aim of this study
is to examine the consumers perceptions of overseas flights of airlines firms in relation
between price and service quality.

Keywords: pricing policy, service quality, airlines industry, customer satisfaction, brand
name

1. INTRODUCTION
Despite the fact that factors other than the price have become more important in
customers behavior during the past few decades, the price remains one of the most
significant factors that define the market share and the effectiveness of a company (Cannon &
Morgan, 1990). Moreover, among the ingredients of the marketing mix, the price is the only
one that yields proceeds. It is therefore obvious that choosing the right price for a particular
product is very important. Unfortunately, there are many companies which do not deal with
the subject of pricing in the right way. It has been observed that the price is defined regardless
of the rest marketing mix elements and that it is not differentiated enough from different
products/ services (Borden, 1984).
According to Rao (1984), price is the only variable of the marketing mix that dont
include expenses (or probably investments) of the funds. The results of the price changes are
immediate and the price based approach is the easiest way to contact potential customers.
However, competitors can react more easily to price based approaches than to those which are
based on product benefits or on image. It can be argued that the price decision may be the
most important aspect of the marketing mix (strategy) for a product/service with a strong

E-mail: pkyriaz@teipir.gr.
E-mail: isamanta@teipir.gr.

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brand name (Rao, 1984). Conventional thinking suggests that the price decision must be made
in accordance with the other elements of the marketing strategy (Kotler & Keller, 2006). On
the other hand the service quality is a very significant factor to the proceeds of a company. If
the service quality is sufficient it can make the customer loyal to the company. Companies
take into account consumers beliefs about service quality in order to predict their profits and
their market share. As consumers judge strictly, companies improve their services according
to what consumers prefer and that increases profits (Cronic et al, 1992). As far as airline
industry is concerned, pricing policy is based on yield management, a quite recent approach,
which includes techniques and strategies like the price discrimination, (a strategy that
involves different cost for the same service) and predatory pricing (selling a service at a very
low price, with a view to ousting competitors, or creating obstacles to likely new competitors,
such as low-cost airline companies) (Coulter, 2001; Kimes, 2000).
The services offered in air travel, they are present and therefore service providers should
try to get rid of any conflicts between customers. Moreover, services are variable as they are
not provided in the same place and service providers behaviour may differ. For instance,
although all cabin crew members of an airline company had the same training, they do not
behave in the same way to passengers (Prayag, 2007). In some airlines, passengers evaluate
not only the service provided but the staff itself. Therefore, the staff of a company that
provides services, its training, service distribution and physical evidence is not only important
elements of 7ps-marketing mix but they also define the total service quality. This means that
service quality and price should combine in a way to satisfy the customers and companies
targets.
Finally, the fourth characteristic of a service is perishability as consumption of a service
cannot be stored for future use. For example, a flight must depart at the defined time and if
there are empty seats the airline company will have a loss of profits (Jobber, 2004). Therefore
an airline company must take into account the characteristics of the service it provides so that
its quality will be high and satisfy consumers standards. The present study defines the
importance of pricing policy and service quality in airline industry during the overseas flights.
Particularly, the pricing policies adopted along with the pricing information collected are
examined. There is a need to examine these policies and information because they are
significant in order to make the right pricing decisions.

2. THEORETICAL APPROACH
The Concept of Price
The price is defined as the amount of money that the buyer gives the seller for a product
or service. In other words, the price is the monetary value that products and services have
when they are exchanged in the market. According to Hanna & Dodge (1995) the definition
of price depends on the aspect from which it can be examined, namely on the market or on
expenditure. Customers regard price as the monetary expression of the value of the quality
dimensions or the benefits for a specific product or service in relation to other products or
services. This relation can be expressed as:
Price= Quality/ Value.

Exploring the Relationship between Price and Service Quality in Airlines Services 239
The price is the payment for the quality as it is interpreted by the evaluation of the
market. From a psychological point of view, the price represents a quantity evaluation or/and
a subjective picture of the benefits of a selected group of traits for a product or service.
Finally, Jacob (2007) states that the price cannot take it into account separately from the other
elements of the Marketing Mix.
Companies that are interested in entering competitive markets should regard price fixing
as a marketing function and not as a logistic one. This notion has a particular application in
companies such as airlines that provide services and serve markets where those responsible
for price fixing take into account factors such as demand models, cost behavior, legal
restrictions, competitors initiatives and reactions, discounts offered by representatives and
the degree of available flexibility. The price, as an element of marketing mix, brings proceeds
to the company (Indounas & Avlonitis , 2006).
On the other hand, the other elements, product, promotion, distribution includes
expenditure although it can be argued that the price of products or services, in an effort to
increase sales, is indirect expenditure as they represent a loss of potential profit from selling
an element. Competition leads airline companies to serve their customers better than their
competitors by means of superior products, more services as well as more effective pricing
plans. In the use of the marketing mix, emphasis is given on the combination of elements, or
in other words, on the relationship of elements with each other as they affect the total
marketing program. These interactions can be depicted from the point of consistency,
integration and levering. The result is a reasonable and useful combination of the elements. In
this way, we ensure the balance of the elements of marketing mix, in both static and dynamic
frames.

Pricing Policy in the Service Sector


The concept of pricing policy is wider than that of defining a price for a service because
the former includes the definition of sale to retailers and wholesalers as well as the discount
policy of the company. Therefore, pricing policy is the set of actions taken in order to transfer
the product from the producer to the consumer (Samanta et al., 2014) based on competition
and organizational abilities. Pricing policy is influenced significantly by the market that
company operates. In oligopolistic markets, the company takes the price for granted and
operates passively in relation to pricing policy. If the price is reduced below the limit defined,
the company must stop the production of that particular product/service. In a monopolistic
market, the company may define actively its prices at least inside certain limits. There are two
basic principles defining prices. For a long time in the past, price was the main factor for a
purchase which still exists in poorer countries (Mantzaris, 2003).
Oxenfeldt stated that pricing objectives offer companies guidelines on how to act.
Diamantopoulos (1991, p. 139) states that pricing objectives are under three main headings
relating to their content (i.e., nature), the desired level of attainment and the associated time
horizon. In regards to their content, both quantitative and qualitative objectives may come
into the objective functions of airline companies. Quantitative objectives are easily estimated
since they incorporate objectives associated with companys sales, profits, and cost coverage
and market share. In contrast, qualitative objectives are related with customers relations, the
firms distributors, their competitors, their long-term survival and the accomplishment of

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social aims. As far as the desired level of attainment is concerned, pricing objectives are
divided into those trying to achieve maximum results concerning profits or sales in
comparison to those that pursue satisfactory results. Nevertheless, interestingly enough,
various authors have criticized the objective of maximization as a rather unrealistic goal.
(Boone & Kurtz, 1980; Bagozzi et al., 1998; Keil et al., 2001). Regarding the time of
achievement, pricing objectives are divided into short-term and long term ones. The former
attempt in achieving particular results in a limited amount of time (such as six months or one
year), while the latter affect after a long period of time. Furthermore, the authors mentioned
above have stated that great emphasis on short-term objectives may endanger the position of
an airline company in the market in the long run. Despite this classification of pricing
objectives, it is necessary to maintain more than one objective at a time due to the fact that
pricing decisions are too complex to make (Oxenfeldt, 1983; Diamantopoulos, 1991; Smith,
1995). Besides that, there is not absolute compatibility between them as the objective of sales
maximization for example, could result in lower proceeds (Keil et al., 2001), whereas a
disproportionate emphasis on them could contradict with the attainment of social goals. There
have been a few empirical studies about pricing objectives in the airline sector which prove
that quantitative objectives may be considered more significant than qualitative ones while
taking profits into consideration.
Whereas pricing objectives offer broad guidelines for action, Oxenfeldt (1983) states that
pricing decisions are made by using clear pricing methods. There are twelve pricing methods
divided into three main categories that are cost based, competition based and demand based.
The first method is subdivided into Target return pricing (Schlissel, 1977), Break-even
analysis (Meidan, 1996), Contribution analysis( Lovelock, 1996) and Marginal pricing
(Bateson, 1995), the second into Pricing similar to competitors or according to the markets
average prices (Zeithaml & Bitner, 1996), Pricing above competitors (Langeard, 2000),
Pricing below competitors (Zeithaml and Bitner, 1996) and Pricing according to the dominant
price in the market (Kurtz and Clow, 1998)] and the third into Perceived-value pricing
(Hoffman and Bateson, 1997), Value pricing(Cahill, 1994) and Pricing according to the
customers needs (Ratza, 1993).
Diamantopoulos (1991) has mentioned that the most flexible element of marketing
strategy is price as a company can make a decision about price faster than the other elements
of marketing strategy. Pricing decisions should be consistent with the total policies and
objectives of a company (Lovelock & Wirtz, 2004). These objectives include, among others,
profit maximization, return on investment (ROI) market share increase, penetration in new
areas and market development. The policy of a company is also a significant characteristic
which influences price decision making. For example, the an airlines company follows a cost
leadership policy, which has made it strive to make costs as minimum as possible and
therefore offer the lowest prices it can.
Pricing policies are the necessary procedures so as to reach the final price (Oxenfeldt,
1983), while pricing information is the organizational and environmental conditions which
must be taken into account in order to set prices (Tzokas et al., 2000). Shipley & Jobber
(2001) have noted that a coherent pricing process is very important. This shows the need to
examine empirically the relationship between the two elements of the pricing process,
because different pricing information is bound to be related with different pricing policies.
Nowadays, yield management includes overbooking and dynamic pricing. American
Airlines have benefited from yield management techniques with $900 million per year

Exploring the Relationship between Price and Service Quality in Airlines Services 241
increase in profits and Delta Airlines with 6300 million per year. As it has been mentioned
previously, an important component in the yield management is overbooking because it is
likely that a passenger may not appear even though a booking has been made, and as a result
there will be loss for the company (Netessine & Shumsky, 2002). Also, another important
component of yield management is dynamic pricing, which is a set of pricing strategies with a
view to increasing profits. These are very useful when two product characteristics exist
simultaneously. Firstly, the product expires at a certain time, such as airline flights. These
characteristics can cause very large swings in the opportunity cost of sale, because the latter is
a potential foregone subsequent sale. The value of a unit when there is a shortage is the
highest value of an unserved customer. Dynamic pricing is when we can predict this value
knowing current sales and available capacity. These techniques are quite valuable. American
Airlines had an additional $500 million per year profit due to its dynamic pricing techniques
(Preston McAfee & Vera teVelde, 2008).
Finally, in the general frame of yield management, nonlinear pricing can be incorporated.
An example of linear pricing for airline companies is the free tickets which frequent travelers
take. The value of these tickets increases with the number of miles that are necessary to
obtain them. Extra discounts are offered for early booking, round trip tickets, no cancellation,
and weekend stays. Therefore it can be argued that such a pricing policy has an immediate
impact on offers and discounts to an airline client.
The distribution channels of most of airlines companies have an impact on determining
price as this depends on whether customers buy their tickets directly from the airline
company, for instance through Internet or through the travel agencies. The ticket price is
affected by how far customers rely on travel agencies. For example, tickets are generally
cheaper if they are purchased through the companies websites than through travel agencies
(Iyer et al., 2002). By applying e-ticket, airlines reduced their prices 25-30% compared to
travel agencies. Moreover, internet travel agencies normally offer lower prices than
conventional agencies (Iyer et al., 2002). The pricing policy of airlines firms is to offer
discounts in order to attract more passengers. They reward their passengers who buy their
tickets in advance with particularly low prices for abroad destinations.
At this point it must be noted that the pricing policy of the company depends on how low
prices the company can afford. The most companys prices are 20% lower than last years due
to high competition.

The Importance of Service Quality to Airline's Strategies


Groonoos (1978) mentions that service quality shows how far the service, its process and
the company can satisfy the customers needs and says that the service has two components,
the technical and the functional quality. Porter (2004) says that service quality is a lasting
element which includes the quality of all actions of a companys staff. Consumers evaluate
service quality by comparing their expectations of a service to what they receive from it.
Marketers, in order to satisfy their customers completely, adopt various strategies.
Organizations usually aim at particular consumers who are worth dealing with because there
are customers whose preferences for a brand differ according to the cost of a service or others
who do not have adequate income to justify the money and effort needed to attract them.
Finally there can be customers who make too much trouble for a service provider to try to

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satisfy them. Therefore, companies should divide customers into three categories. Those with
whom they want to have a long lasting relationship, those whom they should try to contact
through marketing and those who are not worth having business with. The customers of the
second category are of high value and loyalty prone so it is worth trying to offer them high
quality service (Jobber, 2004).
Companies should find out when consumers remain loyal to them, what they consider
valuable and what their profile is. Then they must make decisions about which customers
who have remained loyal to them they must keep, while at the same time they must get in
contact with their loyal customers (Berry, 1995). There are three ways of keeping bonds with
both of them. The first one is, mainly by making discounts to frequent flyers or offering
loyalty points programs (Berry & Parasuraman, 1991). Most of airlines firms have introduced
a program for frequent flyers called Miles & Bonus where frequent consumers win a free
ticket by paying only airport taxes. The second way of bonding is when other than price
incentives are created and therefore there is a probability for a competitive advantage. In
other words, companies make a long lasting relationship with customers treating them
personally. The third way is made by economic, social and structural bonds. Structural bonds
give solutions to any problems that may arise during the service process and therefore create a
connection between service providers and customers (Jobber, 2004).
Another policy is dependent on internal marketing. If the employees of a company are
faithful to it, then they have the experience to create loyal customers. For this reason, the
newly hired employees should have skills, the right training, enthusiasm and motives for
doing their best (Berry, 1995). The company must create a relationship based on trust with its
customers so that they will not turn to another organization. In order to create this relationship
between the company, its staff and its frequent customers, the company should be truthful and
not make exaggerating promises. The customers must be sure of the service they use and this
can be achieved if communication between them and the company is close (Jobber, 2004).
Finally, there must be some recovery strategies in order to make customers trust the company
again and they must improve the service system in order to avoid potential recurrence of the
problem. Firstly, experts should pinpoint the problem, then focus on its causes and finally
suggest solutions which must have as a target the avoidance of the problem in the future
(Maxham & Netemeyer, 2002). Airlines companies give passengers the chance to address the
complaint department of the company or to write their complaints in questionnaires when
they are distributed.

Creating Loyal Relationships with Customers through Service Quality


When companies build up and maintain strong bonds with their customers there are
benefits such as increased purchases (Zeithaml & Bitner, 2002). Reichheld and Sasser (1990),
has stated that consumers have the tendency to spend more money every year with a company
that has a relationship with them. So, trust increases along with relationships. Secondly,
decreased cost is a significant advantage for a firm as it tries to retain their customers and not
attracting new ones. Thirdly, a customer is forever valuable when they constantly create
profits for the company. All airline companies increase their profits at a constant rate due to
their loyal customers rather than occasional ones or passengers who continuously change their
preferences. Also, the fourth advantage is the sustainable or competitive advantage.

Exploring the Relationship between Price and Service Quality in Airlines Services 243
Competition cannot easily duplicate the intangible features of a relationship. For instance, it is
difficult for a company to lose trust. Competitors have difficulty in attracting people who are
loyal consumers of another competitive company. Their positive experience certainly helps
the promotion of the firm to others (Roberts et al., 2003). Finally, an important benefit that
companies have by improving service quality and acquiring loyal consumers is employee
satisfaction and retention. When loyal customers are satisfied, they benefit employees as they
behave in a better way towards them. Employees on their part, instead of wasting time trying
to find new customers in vain they can improve relationships with current customers and thus
create a virtuous circle of satisfied customers and happy employees (Reichheld & Sasser,
1990)
The customer can reap four benefits from a long lasting relationship with a company.
First, there is risk and stress reduction. Customers feel they have taken great risk as they
cannot assess beforehand the outcome of their purchase and this is due to the fact that service
is something intangible. When customers have a long term relationship with the company, a
trust relationship is created between them. Customers feel more comfortable about their
purchase because they know the quality of the service and its results (Berry, 1995). A second
advantage for consumers is that as time passes, the company gets to know their particular
preferences and thus adapts its services according to them (higher quality service) (Jobber,
2004). The third benefit is that the costs from switching to a new service provider can be
avoided by staying with the previous one. The company adapts to its consumers preferences
but if customers turn to a new service provider there may be some mistakes until the new
company knows their needs and this creates costs to their relationship (Berry, 1995).
Finally, long term relationships with the company bring social and status benefits to the
customers. As a service may entail social contact, after some time relationships similar to
personal friendships may be created.

Managing the Barriers of Service Quality to Meet Customer Expectations


In their efforts to satisfy consumers needs, companies may face various problems. For
example, many companies do not understand exactly customers needs or reach wrong
conclusions from marketing research. This leads managers to interpret wrongly how
customers assess a service.
Another barrier is when managers know what customers expect but do not have the
necessary resources. In the past, companies have had difficulty in hiring the right staff to
provide high quality service (Parasuraman et al., 1985). When it is clear which customers
needs the management must focus on, there are available resources but there are no rewarding
staffs and suitable training, then the service provided by the company is not adequate. The
fourth barrier is exaggerated promises. When a company promises more than it can really
offer, the customer feels disappointed even if resources and staff management are adequate
(Jobber, 2004). There are airline companies which have sometimes advertised various ticket
offers at prices lower than what passengers really paid. It was not clear if in that price airport
taxes and other charges were included, so customers felt disappointed and disbelieved in any
future promises of the company. Airlines then changed course of action in its advertising
campaigns and certain customers restored their confidence in it.

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In order to provide service quality, it is important to know and meet customer


expectations. To achieve this, a company should be aware of the criteria needed for the
formation of these expectations given the fact that customers value both the service and the
experience of it (Parasuraman et al., 1985). The criteria used are access, reliability, security,
and credibility, responsiveness, understanding the customer, courtesy, communication,
competence and tangibility. Service providers find them useful in order to know the
customers judgment about them. They should check if consumers use these criteria and find
out where there is room for improvement and compare their service to that of competitive
companies. Many times service quality depends on a series of service encounters, for example
an airline company may include check-in, aircraft look, transport to the aircraft, service
during the flight and check-out. Then each of them should be evaluated taking into account
their influence on total satisfaction in order to take certain measures to improve the situation
(Danaher & Mattson, 1994). There are now questionnaires for measuring customer
satisfaction at various phases of service delivery process (De Ruyter et al., 1997).

Modelling Service Quality (Servqual Model) in the Airline Industry


After the introduction of Servqual (Parasuraman et al., 1985) there has been great
emphasis on the service delivery process. Servqual has five dimensions which show how
Americans perceive service quality (Brady and Cronin, 2001). The European perspective on
the other hand has seven dimensions (Gronroos, 1990) and includes also the technical
characteristic and the corporate image of a company. Kang and James (2004) say that the five
Servqual dimensions match with functional quality in the European model. Servqual
measures service quality from the customers perspective. Customers discussed service
quality according to how far it matched the desired level of performance of a service. If
performance was lower than that level, then quality was also low. Parasuraman et al. (1985,
1988) say that what consumers perceive as quality comes from the gap that is created between
performance and expectations. Quality increases when performance surpasses expectations
and vice versa. The Servqual model focuses on 5 gaps which prevent excellent service
quality. Only gap five can be examined with the help of the data given by customers because
other gaps demand data found by companies (it is significant for firms to recognize the
existing differences in management perceptions of customer expectation, a discrepancy in
management viewpoints and the service adaptations that are enacted. The Servqual model is
of great value to many companies that provide service. It has been useful to the airline sector
where expectations are mainly from the cabin crew (how polite they are, how they can solve
problems that arise), from flight delays and from how accessible places where tickets are sold
are (Albrecht, 1992).
In order to cope with increasing competition, airline companies should take into
consideration what customers expect and how they perceive service. Bozorgi measured
customer satisfaction of the airline and according to what passengers expected he put the
seven dimensions of Gronroos model in an order. He examined forty characteristics and saw
that in three of them passengers were satisfied. Technical quality was what passengers chose
first, then it was tangibility and after that reliability, assurance, responsiveness, image and
empathy. Passengers were satisfied only with the appearance of the staff which is a

Exploring the Relationship between Price and Service Quality in Airlines Services 245
characteristic of tangible dimension, with the courtesy of the staff (assurance dimension) and
with the pilots knowledge (technical dimension).
Chau et al., (2009) tried to apply the SERVQUAL model so as to find out measures that
could be taken by airline companies and also compared what was expected in the East and in
the West about service quality. He used 263 answers from questionnaires in Taiwan and
London and found out that there was a significant difference in answers according to
profession, education and financial status. It was also found out that the Servqual model
dimensions have an influence on customer satisfaction and service. On the other hand, there
was not a significant difference in expectations and perceptions of service quality due to
nationality which was also found out by Sultan & Simpson (2000). Negati et al., (2009)
introduced a TOPSIS approach in order to prioritize the airline industry service quality
dimensions according to what passengers expected. TOPSIS is an approach which can enable
companies to choose the best levels of service quality features that will make customers
satisfied. TOPSIS regards a decision making problem with various features as a geometric
system with traits in the dimensional space. Negati et al., (2009) found that the three most
significant factors considered by passengers are Flight safety, Offering highest possible
quality services to customers 24 hours a day and Good appearance of flight crew. It is very
interesting to mention that respondents chose the possibility of checking flight schedule via
telephone as the least significant quality factor. The studies mentioned above are some of the
most important that have been made on service quality in the airline sector. Other prominent
academics who have conducted studies on this subject are Cronin & Taylor (1992) and
Tierman et al., (2008).

Price vs Service Quality


In the last thirty years there has been consumer research that has documented the fact that
how consumers perceive service depends on price. Consumers demand low prices but in some
cases higher prices make them assume that the goods are of higher quality and this
phenomenon is called price-quality cue utilization (Miyazaki et al., 2005). Also, the
interaction between quality and price is apparent through the marketing mix. All the above
will be analyzed in the following paragraphs (Estelami, 2008).
In order to evaluate the quality of an offer consumers take into account all the available
information but many times this is incomplete or overwhelming. For instance, service quality
is not stated clearly and so consumers rely on brand name or price to form their opinion for a
service. It has been shown that marketers may have a reason for not providing all the
information available and consumers may have to make inferences in order to assess an offer.
Service attributes used for judging information are called cues (Ofir & Lynch, 1984). Many
times consumers are not given much technical information or have not used this service
previously. Therefore they have to rely on brand name, price and third-party endorsements for
their decision. When price is used for making quality inferences, this is called price-quality
cue utilization (Rao, 2005).
Scitovsky (1944) was the first to examine the connection between price and quality
saying that price can have a double function regarding consumers decisions. He noted that
while higher prices may discourage consumers, they may also stimulate purchase through an
assumption formation process when customers regard higher prices as a sign of high quality.

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Later studies have shown how other variables affect the relationship between price and
inferred quality. Gardner (1970) stated that price-quality cue utilization depends on the kind
of service, as some kinds show high use of price-quality use while others show little use.
Also, when new products are accepted in the market, consumers have greater confidence in
utilizing the price-quality cue.
Rao & Monroe (1989) find out how much the price-quality cue is used by asking
consumers how much they use this strategy. These surveys have shown that there are
variations due to different goods or services and research methodologies. Shiv & Ariley
(2005) have shown that expensive products are perceived by customers as of greater value
even if they are not in reality. Another finding is that consumers use of the price-quality cue
may differ from one customer to another.

The Role of Marketing Mix in Service Firms


The relationship between price and the factors that define the overall quality of a product
or service is evident not only from what mentioned above but also from marketing mix. More
specifically, the marketing mix is the total of the company controlled elements that can be
used in order to affect the customers final decision and choice (e.g., price, advertising,
promotion).The most important part of marketing management in an organization of service
provision is the combination of all these elements that compose the marketing mix in such a
way that they will satisfy the needs of the target markets. In this process of the creation of the
marketing mix a company must take into account a lot of variables such as the resources and
the targets of a firm, the political, legal, social, cultural and financial environment of the
organization, as well as the actions of their competitors. (Benetatos et al., 2004).
The marketing mix is a combination of marketing tools which is composed by suitable
executives in order to satisfy the customers and the companies targets (Jobber, 2004).
Another definition of the marketing mix is that it is a term which describes the strategic
position of the product in the market. The marketing mix, which is called demand by
customers, is usually related to the following four elements: product (goods or services),
price, promotion and place (Kiser et al., 1974). In the field of services where airline
companies belong, the 4Ps are not enough in order to describe the marketing activities as
services by nature differ from goods to a great extent. For this reason, in 1981, Booms &
Bitner (1981) proposed the extension of the traditional mix to 7Ps, adding people, processes
and physical evidence. This project focuses on price and quality of service.
Therefore, generally a current marketing mix frame for services is the following:
Service - product. This requires taking into account the scale of the provided services as
well as their quality. Examples of intangible services are tourism and airlines industries. We
also have to note the use of the trade mark, guarantees and after sale services The service mix
may vary significantly and this can be seen if we compare the scale of the service of a small
local company to a large multinational one (Booms & Bitner, 1981) The material aspects of
the service such as the environment (the service during a flight, the dressing code of airline
staff, kindness and helpfulness of staff) and the related equipment (e.g., in-flight
entertainment equipment) are also included in this element of the marketing mix and are basic
elements in defining service quality (Jobber, 2004).

Exploring the Relationship between Price and Service Quality in Airlines Services 247
Price. The definition of price includes the price level, discounts, supplies, terms of
payment and credits. The price is often used for the differentiation of a service from another
one. It also constitutes a means for demand adjustment. The price of a service is determined
by a variety of factors like material costs, market share, competition and the customers
perceived value of the service (Avlonitis & Indounas, 2005).
Place (Distribution). Accessibility and the site of those who provide service are
important factors for service marketing. Accessibility is not only related to physical access
but also to other ways of communication and contact. For example, there must be direct
distribution networks such as representatives, travel agencies etc. in order to sell tickets.
Therefore, the types of distribution networks that are used and their coverage are related to
the vital subject of accessibility to the service (Sandhusen, 2003)
Promotion. This includes various methods of communication with consumers through
public relations, advertising, personal sales, sales promotion and direct marketing. All these
are traditional means of promotion and communication which are led by the promotion
department of marketing management (Kiser et al., 1974).
People (Staff). This is an essential element for the production and the delivery of most
services. The service staffs of airline companies includes pilots, bus drivers, administrative
staff, receptionists, security guards, telephone operators, repairing staff, flight and ground
personnel etc. These people fulfil a productive or operational role but the crucial point is that
they come in contact (direct or indirect) and meet customers. Their behaviour influences
significantly how consumers perceive the quality of service. It is acknowledged more and
more that all the staffs which come in contact with the customers is included in service
marketing. These contacts cannot be random. In services, marketing concerns everyone.
(Behera, 2008).
Procedure. While knowledge, behavior and skills are of vital importance, so is the
procedure, the how, of service delivery. The way in which the total system of service
functions, the policies and the methods adopted, the extent to which technology is used, the
employees discretion, the customers participation in the process of execution of service, the
flow of information, the appointment reservation and the waiting system, the available levels
of productive ability, all constitute typical interest of administrative management. However,
in the sector of services, these factors affect the way in which the customer perceives the
procedure, and the marketing is obliged to be interested in the procedure of implementation
and delivery of the service (Barlon, 2006).
Physical evidence is the material part of a service, with many examples in the airline
industry, as follows: Internet/web pages, paperwork such as tickets. Brochures, signage (such
as those on aircraft), uniforms and the building itself (such as prestigious offices or scenic
headquarters) (Behera, 2008).
In conclusion, the extended form of the marketing mix with the elements of staff,
procedure and physical evidence has repercussions on the organization of the function of
marketing, as well as on the organization of the whole company, the requirements and the
peculiarities of each service providing company. At this point, it is necessary to note that
according to Borden (1984), the list of the elements of marketing mix can be short or long
depending on how far one could go in the categorization and sub-categorization of the
marketing procedures and of the policies with which the marketing managers apply marketing

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plans. In the next paragraph, the price, as an element of marketing mix will be analyzed
further.

Pricing Policy and Service Quality as Main Factors of Customer Satisfaction


As consumers are the main source of profits for a company, customer satisfaction is a
concept academics have been interested in for the last thirty years. Churchill & Suprenant
(1982) state that satisfaction can be evaluated by comparing the rewards customers receive to
the money they give to get the service. Westbrook & Oliver (1981) state that customer
satisfaction is a consequence of an evaluation process. Oliver (1980) defines satisfaction as
the state when customers expectations are all met. Customer satisfaction is their feeling for a
service after its use. It is taken into account in marketing activities and affects buying
behavior. For example, customers will continue using a particular service only when they are
satisfied (East, 1997). Customer satisfaction is a main factor of potential purchase intentions
(Taylor & Baker, 1994). Also, it is possible that satisfied consumers talk about their
experience with a service and thus indirectly advertise it to others (Richens 1983). The
opposite is possible when dissatisfied customers avert others from using a particular service.
Moreover, a companys prosperity is directly influenced by regular purchase and indirect
advertising (File &Prince 1992). Levesque and Mcdougall (1996) verified the idea that if a
service is not satisfactory, the unsatisfied customer will not recommend it to others and
therefore there will be an increasing switch to competitive companies.
There is a five-point scale for measuring customer satisfaction: very dissatisfied,
dissatisfied, indifferent, satisfied and very satisfied. The level of satisfaction is estimated both
totally and for each part of what the company offers. Being very dissatisfied is very different
from being just dissatisfied but the company should find out why there is dissatisfaction. The
same happens with those who are satisfied and very satisfied. A great number of companies
have as a target not only to satisfy consumers but to make them happy too and this means that
firms must go beyond customers expectations. Not everyone feels the same satisfaction for
the same service because they do not have the same needs, objectives and experiences.
Therefore, it is necessary for a company to know exactly a customers needs and objectives so
that it can segment the market as different services do not satisfy customers to the same extent
(Bozorgi, 2006).
Vavra (1997) defines customer satisfaction as a result of the process of consumption. The
final stage may be either a state of reward, a sentimental response to something experienced
or a comparison between what a customer receives or gives and the expected results. Vavra
also states that satisfaction depends on perceptual and psychological processes and the
evaluation of satisfaction is made when the service is being provided. If satisfaction is
regarded as a process, the definitions mentioned above focus on what leads to satisfaction and
not just on satisfaction and therefore there have been many attempts to understand this
process and evaluate satisfaction.
The Importance of Brand Name in Airline Firms
Until 1973, Singapore Airlines focused their promotion on cabin design, food, comfort
and pricing not taking into account the sensory experience they could provide to passengers.
This changed when they introduced the brand figure of the Singapore girl incorporating smell

Exploring the Relationship between Price and Service Quality in Airlines Services 249
into branding and focused their advertising campaign on the emotional experience of travel.
Their strategy was to present themselves as an entertainment company and not simply an
airline. Later, the staff uniforms were made of high quality silk and the colours and patterns
matched those of the cabin and the airlines brand colour scheme. Then the Singapore girl
became an icon. The selection criteria for the staff became very strict concerning age, body
size, and beauty and training. By the end of the 1990s Singapore airlines introduced a
specifically designed aroma, named Stefan Floridian Waters, which was used in the staffs
perfume, in hot towels and generally everywhere in the planes. It is interesting to note that
only a few passengers remember the smell of this aroma but those who take another journey
recognize it as soon as they get into the aircraft and describe it as exotically Asian and
feminine. Therefore, many marketers say that we must regard the brand as a complete sensory
experience. Lindstrom describes Singapore Airlines as a strict brand taking into account all
five senses resulting in its being among the most popular and profitable airlines in the world
(Chan,2000). British Airways (BA) has decided to enter again the mass travel market because
of the success of budget carriers like Ryanair and EasyJet. However, some people say that it
is dangerous for the company to mix leisure with business travel because that may send
confusing messages about its brand name. Others suggest though, that this venture will just
complement the main service of the company as business travel is usually bought in bulk at
discount prices and therefore it s not threatened by the low cost venture. BA has promised,
apart from competitive prices, unique services making these flights similar to higher-class
ones and incorporating the journey into the holiday experience. BAs low cost competitors
aim at reliability and punctuality and they doubt its financial structure because BA still has
more staff than its competitors who have as a principle that cheap tickets require low cost
(Anonymous, 2007).
Gale (1994) states that a strong brand is a name that means satisfaction, quality and
value to a customer. In order to achieve that, he states that companies should understand
customers needs, provide superior quality and have total cost leadership and effective
positioning. Kapferer (1992), states that branding culture is not strongly incorporated in
service. He also mentions the subjects of intangibility and invisibility of services and he
suggests ways of naming brands. Berry & Parasuraman (1991) provide a checklist for naming
brands while Levy (1996) states that a brand, in order to be successful, has to rely on the
principles of fast moving consumer goods (FMCG) branding. The principles are
product/service definition, brand differentiation, clear product/service benefit identification,
consumer motivation and measurement of service strength. The FMCG model can be used in
order to make service brands. They also think that there are not enough branding efforts in the
services industry and mention the issues that influence branding such as importance of
symbols, empowerment of staff, consumer participation in developing the brand and
characteristics of services.
According to Aaker (1996), brands express brand equity which refers to the inherent
value of a recognized brand. Dedication is the main dimension of brand equity. If consumers
are indifferent to the brand and quite sensitive to the issue of price, the brand has low equity.
On the other hand, if a consumer always selects the same brand not taking its price into
account, then the value of the brand increases. It is very important for a brand to have
increased brand equity because this show how much known it is in the market and what
position it has in the consumers mind. Therefore, the brands that have high brand equity are
those which a consumer recalls first when buying a product/service. For example, if a

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consumer wants to purchase an air ticket, the first airline brands that come into mind may be
those of BA or Lufthansa depending on destination. This means that these brands have high
brand equity. For each product/service category there is a brand which is considered more
popular and is the first that comes into the consumers mind.
Brand Value in Relation to the Perceived Service Quality and Price Policy
The brand is strength of a company and produces a value. The value of a brand is the
value of the additional money flow created by a product/service because it was identified with
its brand (Aaker, 1991). Brand value is defined as a set of assets and financial obligations that
are connected to the brand, its name and its symbol and increases or reduces the value coming
from a product or service provided to the companys customers (Aaker, 1994). The Market
Science Institute (2002) considers that brand value is defined by the customer and not by the
company. From this point of view, the Institute defines brand value as the set of the
customers relationships with the brand that allows the brand to create greater turnover than
the case where the product/service did not have this brand. Brand value includes some
concepts (Aaker, 1991). These are:
Brand loyalty. Brand loyalty refers to the extent of dedication between the consumer and
the brand. According to this definition, dedication to the brand is the result of the process of
evaluating customer satisfaction.
Brand awareness: People often choose a familiar brand because they feel comfortable
with familiar things. Also, a brand that is familiar is possibly reliable. A recognizable brand
can be often selected rather than an unknown one. The extent of brand awareness is
particularly important, as the brand must first be in consumers minds as one of the brands
that are evaluated before purchase. An unknown brand has very limited chances of selection
(Aaker, 1991).
Perceived quality: The quality of a product/service refers to the customers perception of
the general quality or the superiority of a product or service, paying attention to other
parameters as well. It is a consumers judgment in relation to the perfection and superiority of
the product/service that can transfer this superiority to the brand (Aaker, 1994). A highly
perceived quality can lead to the increase of the product/service price, allowing the
management to avoid intense price competition. Also, the favourable perceived quality
facilitates the extension of a brand series as the perceived quality of a brand is transferred to
relative products/services.
Brand association/brand image: Brand association is whatever is connected to brand
recalling (Aaker, 1991). Brand association is greater when it is based on a lot of experiences
or exposure to messages. The brand image is a set of connections. The connections create
value for the brand as they help in the collection and process of information, they differentiate
the brand, they create a reason for purchasing and they create positive attitudes and emotions.
Other propriety brand assets: These are certain programs for customers, for example
frequent customers programs etc.

Exploring the Relationship between Price and Service Quality in Airlines Services 251

CONCLUSION
The price definition and the quality of a service that is offered by an airline company are
significant factors for its success and viability in the framework of intense competition
(external environment). These two concepts should not be taken into account separately
because this relationship affects the behavior of many consumers concerning how willing
they are to pay in order to travel by an airline company. An airline company must build a
relationship of confidence (brand loyalty) with the consumers giving them, if it is feasible,
quality services in suitable and acceptable prices. Providing acceptable prices does not always
mean that consumers demand low prices. On the contrary, many times, if the service is
offered at higher prices, consumers may assume that its quality is of high standards (pricequality cue utilization). Moreover, an airline company should build a reliable brand name
which will be trusted by consumers and also make clear what the quality of the service
offered is. Additionally, the companys brand name is strong but in order to improve it, they
have to reconsider or readjust a few pricing policies. The perception the passengers have for
the relationship between the service offered and the price is open to improvement in spite of
the fact that its level is generally high. This can be achieved by using better strategies so that
the product price will be a good index for the quality of the service and also the price and the
quality will satisfy the passengers needs. Finally the companys logo evaluation is clearly at
a very high level.

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