An Intuitive Reaction to MAS New Air Fares

I applaud Datuk Idris Jala’s cost cutting measures at MAS. I applaud his efforts to innovate and increase the company’s revenues. I applaud his efforts in turning around the company. And I welcome changes to the way things are done at MAS.

BUT I have huge reservations to the latest initiative launched two days ago on the new airline fare structure. I understand the need for MAS to stay competitive. I understand that the 4 new airfare structures introduced by MAS is a covert method of more perfectly price discriminating passengers to increase total revenue. Theoretically, by charging 4 different prices for the same air route, MAS will be able to more perfectly exploit the different elasticity of demands for different passenger groups and hence increase revenue.

BUT this is what I have to say. The new airfare structure is simply TOO COMPLICATED AND COMPLEX for the average customer to understand. And this might work against MAS.

Four different price structures is a little too much for the average consumer to grapple with. There are just simply too many subtle differences in terms and conditions.

A few years back Celcom also experimented with this system for its prepaid customers. It launched 3 different plans for prepaid customers – Celcom Xcel, Xceed and Xplore. Theoretically it seems perfect. It offers value to different segments of consumers and tends to increase Celcom’s revenue. But I’m guessing the intended result did not follow the standard Econs/Biz manual. I do not have the data to support my point here, but I’m guessing that the program was not as successful as the management had planned. Celcom eventually merged its 3 prepaid plans into what is now known as Celcom Xpax.

So MAS, I would like to say the following to the management. Consider the SUBTLE INTRICACIES of offering so many options to customers. Maybe the more savvy ones will spend more time researching about your different plans. But will time-constrained consumers be willing to spend time understanding your 4 new structures? Or will they just give up and fly SIA or fly budget AirAsia?

Look, I’m not saying all is lost. There is pretty much nothing MAS can do since it has already launched the airfare to much fanfare 2 days ago. What MAS must do now is to engage in an aggressive marketing strategy to SIMPLIFY the structures.

I was reading newspaper reports on the 4 structures and they are very vague. Failure to do a good marketing strategy will simply result in disastrous losses.

I am seriously wondering why MAS is taking a budget approach towards airfares when it already has FireFly to service to budget segment. Look where SIA is going? It’s taking the luxury approach and is posting remarkable profits year after year. It stopped flying economy class to New York and now only flies business class there.

MAS, your cabin crew is one of the best in the world. Make full use of it. KNOW YOUR MARKET. Don’t be sucked into a futile competition with AirAsia. Both of you are competing in different market segments. And most importantly, don’t do a Qantas.

Tags: Airlines, Economics, MAS

Eat & Sleep Pte Ltd

Guess u guys would be expecting an update of the Dinner & Dance rite? WRONG!
Gotcha….haha…Give me a few more days to sort out photos n all, it’s gonna be some time.

Anyway, this is a blog post on a project my Primary 1 friend, Bryan is taking (and I guess I’ll be devoting much time to in my days in KL - we alr had discussions on further spin-off projects, so keep coming back for more exciting news here soon)

This project, in its 2nd edition is called Eat & Sleep Sdn Bhd aka Eat and Sleep Pte Ltd

Eat & Sleep is a lifestyle. It’s a lifestyle where we devote all our time to slack and not mug like we always do. It’s just perfect timing now considering our A-levels are over. No more studying. No more mugging. No more schooling. Just Eat, Sleep, Eat, Sleep, Eat, Sleep……what a great life…lol

The main merchandise of this lifestyle project is the t-shirt - Eat & Sleep Tees.

The following is copied wholesale from Bryan’s blog:

Any comments peeps? =p
I will be making those tees, available in all common sizes (S, M, L, XL). Price: TOC. Delivery method via Poslaju or COD.
Wanna place an order? Email me with required personal details (name, size, payment method, delivery method, quantity) to wen_pin_s@hotmail.com .
Again, its Limited Edition (50 pieces only). Deposit are NOT required! =)

Cheers…

P/S- Will post the back design pretty soon. Please help me promote on your blog k?
Haha…

**UPDATES**

Eat & Sleep Sdn Bhd
T-shirt update

Price: RM25 each
(order now and pay only RM22!!)

Delivery via COD (Puchong area) or Poslaju (RM5)

The more you purchase, the cheaper it gets… ;P
Send me your details (Name, Address, Size, Quantity, Payment method, Delivery method) to wen_pin_s@hotmail.com or via SMS at 013-398 9101.

P/S: Deposit of RM10 is required to avoid FFKs. =P
Limited to 50 units only. Strictly on First Come, First Served!!

Thank You! Support the original Eat & Sleep Sdn Bhd

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Yeah, this is a promotion on behalf of my best friend. I was supposed to be part of the project and take an extra 50 Tees for myself. But maybe not this project. A little too busy at this point of time. Another upcoming project currently under discussions sounds more interesting. Als0 a t-shirt project. But this time we won’t be small time retailers….We gonna strike it out big in the market. It’s gonna be a big project. BIG BIG PROJECT. Stay updated here…..

Oh btw, I am accepting Eat & Sleep Pte Ltd orders here too, on behalf of my friend. Orders from anyway across the globe welcomed. Price and delivery charges negotiable according to Forex. Just drop me a comment in this blog and I’ll get back to you.

P/S: I might be discontinuing my Singapore number, so just drop me a message here to ensure prompt reply.

Oil Price Hike

I’m not going to sit here condemning the Government’s decision to increase the retail price of oil in Malaysia. I’m actually half happy and half sad that the Government is doing this.

Half-Happy

The decision to increase the retail price of petroleum and diesel is a brave one. It’s going to be gravely unpopular with the public considering that rising cost of living was a major factor that led to the huge defeat by the ruling coalition.

From a macroeconomic point of view, I’m glad the decision was taken because Malaysia can never continue subsidising fuel. Malaysia is a net oil exporter. It will be a net oil importer in the next few years and its oil reserves is projected to diminish in the next 10 years. World oil prices have increased about 400 percent to roughly US$130 per barrel. The increasing world oil prices have seen the oil subsidies provided by the Malaysian government ballooned from RM19billion to a projected RM55billion this year.

Our whole economy is crippled by the Government’s inability to allocate valuable resources to more important investments for our country’s future growth. And the subsidies provided by the Government have only exemplified the subsidy mentality. Are we experiencing a mini resource curse where countries with natural resources experience slower economic growth?

Half-Sad

I’m actually pessimistic with this decision because the reduction of fuel subsidies will lead to inflation. And the problem with inflation in an economy like Malaysia is more serious as compared to Singapore. In Singapore, wages are continuing to rise due to the labour shortage and as long as the increases in wages are higher than the inflation level, there would not be much of a problem. But the problem with Malaysia is wages are not rising as fast as it ought to be.

This leads to a more serious fundamental problem plaguing our economy – our comparative advantage. We are still stuck in our 1980-90s mentality of attracting low value-added manufacturing FDI. We forget that we do not possess the comparative advantage in labour intensive industries anymore as countries like China and Vietnam open their doors to foreign investors.

This debate can go on for pages on where Malaysia has gone wrong, but I shall not spend time elaborating. There are many factors – corruption, transparency issues, education system, government efficiency etc

The bigger question that we should ask is what the government will do with the savings from the reduction in oil subsidies. In fact many will argue that the government is actually richer than ever before considering that Petronas and other commodities companies are posting record profits thereby contributing significantly more to the Government’s coffers through corporate taxes.

I’m sad at this because the bare fact is we do not know. The money might be used to fund important infrastructure projects or to improve our public transport, both of which will boost our country’s competitiveness and attractiveness as an investment location. Or the money can be wasted on some corruption-laden non-productive projects.

Where are we heading after this?

Ending Piracy Using the Big Mac Way?

I was reading the Today newspaper dated 27th November and there I read a published letter by a person on one method of ending rampant [tag]piracy[/tag] of [tag]music[/tag], movies and computer softwares.

He was saying that no matter how tough the enforcement of the piracy law is, piracy will not go away easily. Well, in [tag]Economics[/tag] term there is such a thing called demand for such pirated goods due to the cheap prices offered relative to the original products. And when there is a demand for such products, there will be people willing to take the risks (in this case fines and jail terms) to supply these products to earn profits.

The average guy down the street will feel that they are being ripped off by the huge companies for charging a very high price for their products and will resort to pirated goods to offset the high costs.

As such, the author suggested using the [tag]Big Mac[/tag] type of [tag]pricing[/tag] for these products to make them more affordable for the average person in different countries. When original products are more affordable for a significant majority of the population, people will be more inclined to buy original products thus lowering the piracy rate. Of course this have to be coupled with education on respecting intellectual property, but the current tactic of using only education and law enforcement is not very effective because it doesn’t deal with the affordability aspect of the problem.

The author goes on to continue giving example of how the Big Mac is priced differently in different countries although it is supposed to be the same size and have the same ingredients. For example the Big Mac costs S$3.60 in Singapore but across the Causeway in Malaysia it costs only S$2.40. In the US, it is S$4.70 while in Switzerland, it is S$8.20.

The Economist magazine also has a Big Mac index to measure the different prices of Big Mac around the world. It is based on the economic theory of [tag]Purchasing Power Parity[/tag] (PPP) to see how a certain amount of money can buy different amounts of goods in different countries. But their main function of the Economist’s index is to measure how a certain currency is undervalued or overvalued. It takes the US dollar as a benchmark to compare the Big Mac prices and it found that certain Asian currencies are undervalued by as much as 40-50%.

Source: http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8649005
Continuing on, what the author suggest is pretty much feasible. If McDonalds can do it worldwide and charge a different rate for the same product (Big Mac), why can’t the music, video and computer software companies implement the same thing?

They can charge different prices for the same product in different countries thereby making their products affordable for the masses. Then, they can all stop bitching about rampant piracy cutting their margins.

I believe this is a very reasonable idea to be adopted. Price Discrimination as they may call in Economics where producers charge different prices for the same product. Companies practise it all the time. But why can’t they use it for this purpose. Book producers do it by charging a cheaper price for text books for sale in Asian markets but a higher price in European markets. At the back of the book you see a small note: For sale in Asian markets only.

Well, Economics text books say: For Price Discrimination to occur, the supplier must have monopoly power, there must be a segmentation of the market, resale of the product must not be possible and the demand elasticity of the product must be different.

In this sense, the music, video and computer software industry satisfies all these 4 conditions.

In fact, by using this method, the producers will be able to increase revenue and profits. Although the producers will earn less for every product sold, but because the product is [tag]price elastic[/tag] in [tag]Asian[/tag] markets (Asians are very price conscious and will buy the cheaper alternative [also dependent on level of respect of intellectual property]), the overall decrease in prices will result in a more than proportionate increase in products sold. And as a result profits will increase. To make profits for the companies even bigger, they can further price discriminate internally within a country. They can charge consumers a lower rate. Companies and government that uses the products for commercial purposes meanwhile can be charged a higher rate.

I am very puzzled while such a simple idea cannot be implemented by these huge companies. Why can’t they work with the [tag]free market[/tag] and undertake policies accordingly? Instead they are focusing all their efforts in bitching to governments to enforce piracy laws etc.

[tag]Record companies[/tag] themselves are passionate about price discrimination. In fact they are pushing to practise [tag]price discrimination[/tag] in the online music trade world. As we all know, Apple’s iTunes Music Store charges US$0.99 for a single download of song. However, record companies are pushing for flexible pricing. It wants iTunes Music Store to charge newer songs at a higher price and catalogue materials for less.

Source: http://www.engadget.com/2006/04/21/apples-itunes-pricing-to-stay-at-99-cents/

Why want to price discriminate in the US but not in Asian markets? Even for the 99cents a download, it is pretty much expensive for the average Asian consumers.

Take for example the average music CD price. In Malaysia, the average music CD costs RM40. In Singapore, it is around S$20 while in the US it is around US$10.

Assuming the average pay of the average worker is RM2000, S$2000 and US$2000 in the 3 countries, one will easily understand why piracy is more rampant in Malaysia and almost non-existent in the US. This is because to buy an average music CD, it costs 2% of the average Malaysian pay, 1% of the average Singaporean pay and 0.05% of the average American pay. You see, the proportion of income spent on music CD will be much higher in less developed countries. This is related to the Economist’s PPP because currencies of less-developed countries tend to be undervalued to the US dollar.

Big Mac is priced differently in different countries to make it more affordable for the average man. Yet, we have not heard of McDonalds complaining of low sales because it is not affordable.

Yes, it does not suffer from piracy situation, but it does have many local competitors who offer similar burgers at a cheaper rate.

Yes, I would agree that pirates sometimes can duplicate a product to such great quality that sometimes one cannot disseminate the differences of an original to a pirated product. But things can be further improved by educating the public on intellectual property. However, people will not resort to original products if the price difference is too massive.

One question for all of you to ponder: Why do book publishers rarely complain about piracy, in this case students photocopying their books? Because first the practise price discrimination according to regions and more importantly they offer value-added products. They offer more information on their websites, CDs with more programs, softwares, online tutoring, online mentoring, online marking and the list goes on.

Yes, I would agree that the cost of producing the goods will be similar although the selling price will be lower in most Asian countries. However one also has to consider that the cost of promoting a product will also be lower in Asian countries and the possible benefit of eradicating piracy in the long run.

In conclusion, by using the Big Mac style of pricing, products will be significantly affordable for the average man in different countries. With continuous education and campaigns on the need to support intellectual property and law enforcement by the police, I’m pretty sure more and more people will soon resort to buying original products and piracy rates will go down.

Respect

What do you think of this?

Woman = Problems?

I found this in one of my fren’s pix in Friendster while surfing around a few days back. Kinda funny I guess. But is it true?

If only we learn this kinda Mathematical equations in class….maths will be so much simpler…..

Sunday Come, Sunday Go

If you read my previous post, I wrote about all my grandiose plans on all my studies that I’m so gonna catch up today.

But those plans just simply remained as plans. I did not accomplish any of them today. I have another few more hours for today to make amends, and that so I believe is to at least finish reading the Spectator magazine that I borrowed from school library. It’s due tomorrow.

I have read half the magazine and it’s really insightful on the [tag]Just War[/tag] theory. It explains to me the proportionality measurement that works as a measuring tool to determine whether a war is justifiable or not.

There are two main parts of the theory. First, it states that if the possible harm created from the war is more than the possible good which will result, then the war is not justifiable. Secondly, it also states that if the collateral damage it creates from an attach on the opponent is more than the military value of the target, then it is also not justifiable.

Most countries subscribe to the Just War theory in determining whether or not a war should be waged or not.

But this theory of measurement has several drawbacks. First, how do you give a measurement of proportionality on losses substantiated from the warring parties i.e. own and enemy? Secondly, it is also hard to determine the possible harm because there are many damages that are unintentional.

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Anyway, that’s some short snipped on the Just War theory…Cool stuff….

Well, if you are wondering what happened today that made me abandoned all my grandiose plans, here’s the reason. I went out with my aunt and family who came down to Singapore.

They took a one month break from China and are now spending a few days in JB.

I met them at Queensway Shopping Centre and we had lunch there. Then we made our way to the Haw Par Villa….What’s that? More update + pixs in the next post…. =)

The 80/20 Rule aka Pareto Principle

This will be the super theory of the year for me. I just learnt about this rule which states that 80% of the effects come from 20% of the causes…

This principle was introduced by Quality Management pioneer, [tag]Dr. Joseph Juran[/tag]. He named the principle after the Italian economist, [tag]Vilfredo Pareto[/tag]who observed that 80% of income in Italy went to 20% of the population.

For my fellow JC students, just in case you are wondering why the name Pareto sounds so familiar in Economics, well, he is the exact same guy who introduced the concept of Pareto Efficiency which states that once the welfare of society is maximised, it is impossible for one individual to be better off without another individual being worse off.

This [tag]80/20 Rule[/tag] or also known as the [tag]Pareto Principle[/tag] has been applied to many areas. It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients.”

Dr. Joseph Juran recognized this universal principle he called the “vital few and trivial many” and reduced it to writing.

The original observation of wealth in Italy occurs in many different and mundane aspects too. For example, we wear our 20% most favoured clothes about 80% of the time and we spend 80% of the time with 20% of our acquaintances.

If you remembered last week, during the heat of the exam period, I tried to plot a graph relating effort, result and time? I call it the Effort-Result-Time Concept. Click on the link to see the graph.

Well, back then I didn’t know about this concept. A visit to my uncle’s place enlightened me about this and for students out there, I believe this is extremely true…

80% of the grades come from 20% of the effort. So why work so hard to get 100% when 80% is enough for an A? 20% of effort….Much less than what I had anticipated…Lol