Optimising pricing through selling discounts
Buying discounts and growing revenues
The brief
In Germany Deutsche Bahn operate the popular and efficient national railways. A key part of the transport infrastructure. The rail network is extensive and heavily invested in, so their product is well known and used by most of the population. With such a popular product Deutsche Bahn are important to travellers – but their ‘competition’ is car travel which can be perceived as lower cost and more convenient for travellers.
So how can Deutsche Bahn capitalise on their investments and their popularity? Plus what’s the optimal approach to pricing rail travel for them?
Strategy
Like most rail companies, Deutsche Bahn planned a discount card to target at specific customer segments. They quickly found that the card was appealing to other customers outside their target segments. So the strategy proposal was to position the BahnCard as a card for everyone. A mainstream discount card that any citizen could buy and benefit from.
Actions
Deutsche Bahn positioned the BahnCard as available to everyone with different levels of BahnCard offering different levels of discount. Customers could pay from E 57 to E 460 to benefit from different levels of discount on their train tickets – with discounts of up to 50% on all train travel for one year.
Pricing psychology explains that this makes use of the ‘Certainty effect’ through which customers are buying the benefit of being sure of a getting a good price. Less need to spend time and effort checking, or even thinking, because you have the certainty of knowing that you’ve got a good deal.
The big difference
With over 4 million rail passengers paying for a BahnCard, over 5% of the population of Germany are happy to benefit from discounted rail travel. More than half of the passenger revenue of Deutsche Bahn long-distance comes from tickets sold to BahnCard holders, plus it’s a significant up front revenue stream which helps cashflow.
Of course many BahnCard holders travel by train regularly, however alongside regular train travellers, there are segments that buy their discount card, but don’t use it enough in a year to recover the investment through savings on ticket purchases. People don’t travel as much as they expect to. In fact research by Deutsche Bahn confirms that customers don’t calculate or know the ‘breakeven point’ at which the savings they have made recovers the investment in the purchase of the card. Despite this, BahnCard holders are satisfied with the benefit of knowing they can buy tickets at a discount, even if they don’t actually buy them.
Selling discounts whilst optimising revenue. Great for customers, and good business for Deutsche Bahn.
