Tales from airline insider

One of the great things about attending business school in downtown NYC is the quality and breadth of speakers who come to campus. This week, Rick Zeni, formerly of US Airways and JetBlue, visited my Revenue Management class to talk about pricing in the airline industry. It was one of the first to use dynamic pricing and segmentation to increase profitability. Now, of course, it helps airlines be much less unprofitable than the otherwise would be.

JetBlue is my favorite airline and Rick confirmed that they really do care about CX and service there. The consciously have fewer seats per plane, personal TVs for every seat, etc., and these costs make them less profitable than, say, Spirit Airlines. In terms of CX, JetBlue beats out mainstream carriers, too. If people love JetBlue, asked Rick, why aren’t they able to charge a premium?

People love JetBlue:

"JetBlue's killer legroom JFK-Salt Lake" - flickr post

“JetBlue’s killer legroom JFK-Salt Lake” – flickr post

He asked us to raise our hands if we’d pay an extra $1 to fly JetBlue versus another carrier. Most everyone raised theirs. The problem is that, while many customers would pay a $1 premium to fly on JetBlue, many would not.  If JetBlue loses one $150 fare because it asked for $151, then 150 passengers would have to pay the $1 premium just for JetBlue to break even. Leisure flyers are notoriously price sensitive, so the math doesn’t work.

This is not to say that JetBlue’s efforts are for naught. The idea is that JetBlue’s superior CX helps it to win in a tie. That is, if customers have several options at the same price, they’ll more often choose Jet Blue, boosting the airline’s yield.

Spirit provides an compelling comparison. Spirit attracts customers who care only about price. It is infamous for charging very low fares, then annoying customers with fees – including up to $100 for a carry-on bag. It is also infamous for getting free publicity by creating ads so offensive they get media coverage. According to Rick, Spirit also packs the maximum number of seats on each plane as allowed by law.

Customers notice:

"This is how much leg room you get" on Spirit - Yelp!

“This is how much leg room you get” on Spirit – Yelp!

It riles me when companies that care thismuch about CX outperform companies that make exceptional CX the cornerstone of their business. Of course, profitability matters, too … see: Virgin America. It will be interesting to see how these airlines fare over the longer term.

For the record, I flew Spirit once and it was a maddening experience.

Posted in Customer behavior, Marketing, Pricing | 1 Comment

American and SuperShuttle: call me … maybe?

Dear American Airlines and SuperShuttle,

This seems obvious, but apparently you need a reminder: Don’t leave customers in the lurch. Don’t leave them guessing. Don’t cause them needless stress. Listen up …

I’ve been looking forward to a trip to Austin for my niece’s 4th birthday party. It’s coming about a week after Hurricane Sandy knocked out power, water, and cell service at my apartment. I spent five days away from home, camping out at friends’ places in a city short on extra space. A nor’easter (effectively a wintery hurricane) is on its way, which is, of course, the last thing NYC and the surrounding areas need. It also threatened my flight to Austin, which was scheduled for 5pm today.

Around 10pm last night, I went to AA.com to check on my flight. Cancelled. In bright red letters. Umm, when did they plan to tell me? I did some digging on the American Airlines Twitter feed and discovered that all flights past 3pm were preemptively cancelled due to the impending storm. Did they expect me to discover that when I arrived at the airport after braving the storm, only to turn around and go home? They should have called. Or texted. Or e-mailed.

I called their customer service line and waited on hold for over an hour before giving up. I talked to my sister in Austin and told her I wasn’t going to make it. She flies a lot on American, so has some sort of VIP hotline number. She called that and got me on an early morning flight out of Laguardia. Sweet! The trip was back on!

I balk at the high flat airport fares charged by taxis, so I reserved a SuperShuttle pickup online. I was given the window of 5:50-6:05am. I’ve found that service to be very prompt, so this morning I was not just ready, but outside, curbside at 5:50. By 6am, there was no sign of the van, so I went to SuperShuttle on my phone (nice mobile site, by the way). It said the van was 1.16 miles away. Five minutes later, it was 1.17 miles away. Another five minutes later, it was 2.15 miles away. Wrong direction! I was getting really cold, so went into the atrium of my building.

Finally, at 6:24, I got a call from the driver to confirm directions to my place. He arrived at 6:28 with no apology or acknowledgment that he was late. I’d been waiting since 5:50 with no word from him, so, by my count, he was 38 minutes late. Unacceptable! In those 38 minutes, I’d gone from eager to annoyed to panicky to angry. If he was going to be even a few minutes past the end of the window they’d given me, he should have called.

I’m now sitting at the airport, awaiting my flight. A big hug from my niece will erase my irritation, but I won’t forget that American and SuperShuttle unnecessarily created it. So, next time you know things aren’t going according to plan, will you call me … maybe?

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Daily deals from a full-price customer’s perspective

I’ve previously shared my doubts about daily deals (Groupon, LivingSocial, etc.) and their bottom-line and long-term benefit for small businesses. Part of that was based on my own behavior as a user of those types of deals, as very rarely did I ever return to pay full price after using one.

Only recently, however, have I experienced what it’s like to be an existing full-price customer of a place that runs a daily deal. The punchline: it sucks.

I’m in Chicago for the summer, doing my MBA internship, and found a fantastic gym called Core Fitness. It has a class called Train Like Jane, a women-only primal-style workout in which we flip truck tires, run relays with sandbags, etc. I always emerge dirty, drenched in sweat, high on adrenaline, and grinning ear to ear. I happily paid full price for a 10-class pass and raved about the place to my coworkers and friends.

Then, Core Fitness participated in a Groupon deal and, suddenly, the classes were chock full and the popular days/times booked a few weeks out. Talking to the new students, I found out that they’d paid $1 per class and were just there “to check it out.” They’re lucky my primally-buff self didn’t punch them out!

So, Core Fitness, and any other business considering selling its services for a fraction of the price (the gym made, what 50¢/student/class?) … take a moment to consider how your loyal, full-price customers will feel.

In this particular case, I’m working my butt off in a class I barely squeezed into, watching the trainer coach Looky Loos who are unlikely to return when their $1/class deal is up. It’s way worse than the New Year’s Resolution flood at the gym. At least those short-timers are paying full price and, honestly, subsidizing the those of us who go all year.

When a flood of Grouponers hits a place you love, it stings like it’s personal.

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Russian taxis

In many parts of the world, tourists are urged not to trust “black” (unregistered, unofficial) taxis and instead to always request one from a reputable hotel. During a recent trip to Moscow, I discovered the reverse to be true there. A Sheraton was across from where we were staying (an authentic Airbnb place fitting of my non-existent Russian grandmother!) where the hotel taxis were charging triple reasonable rates.

Indignant, my sister and I opted to try flagging one down on the street. There are very few marked taxis; most are random people who stop to see if you’re heading their way. Within seconds of putting out my hand, one stopped. I didn’t like his price of 400, so I offered him 200. He said 300 and I sent him away. Another car was already waiting behind him. That guy also asked for 300, so I sent him away. A third car had queued up and, when he wouldn’t settle for less than 300, I was satisfied that that was the going rate, and we hopped in.

He spoke very little English, but I’d written the address in Cyrillic characters, so he was able to swiftly deliver us to our meeting at Unicredit Bank. The situation probably would’ve been very uncomfortable for most Western travelers, which is why the hotel taxis can charge such exorbitant rates.

Urban hitchhiking at its finest!

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REI is holding my bag hostage

I’m gearing up for a whirlwind trip to Europe between the end of final exams and the beginning of my summer internship. While visiting my family in Seattle, I stopped by REI’s (duly impressive) flagship store and found a great backpack. (Cobblestone streets + rolling suitcase = big hassle.) I didn’t want to pay to check it on the way back to NYC, so I ordered it online to be shipped to the store near my place. It was in stock there, but I have a tight timeline and didn’t want to risk showing up and it being MIA.

I ordered it on Tuesday and flew back on Wednesday. The scheduled pick-up date is Saturday. REI says I’ll get an e-mail when it’s ready to be picked up. Of course, I’d rather to have it now. If it’s in stock, why can’t the store set it aside for immediate pick-up? I’ve already paid, so it would be a quick, painless transaction and I’d be a happy customer.

This was a missed opportunity on REI’s part. I could be excitedly packing my cool, new bag for the trip. Instead, I feel like REI is holding it hostage and I’m feeling less and less positive about the company – it’s flagship store wasn’t that special.

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Pricing tricks

Pricing is one of the most fascinating aspects of business. Behind pricing decisions are lots of careful calculations … both numeric and psychological. The latter owe to shoppers’ irrationality when it comes to prices.

This SmartMoney article outlines five pricing tricks retailers use to exploit shopper psychology:

  1. Use round dollar amounts. JC Penney is doing this to differentiate itself from other mass-market retailers. $20 seems simpler and less “tricky” than $19.99, meaning JC Penney’s trick (er, strategy) is to seem less tricky than the competition.
  2. Offer less for the same price. Customers don’t generally like this, but when the product is a guilty pleasure, such as Ghiradelli chocolate, they may pat themselves on the back for being slightly less sinful.
  3. Provide a reference point. Especially for large, infrequent purchases, customers may not have a good idea what they want to spend or what they can get for their money. As such, retailers can nudge customers toward the product they want to sell by placing it next to something either far more expensive (to make the product seem more affordable) or far less desirable (to make the product seem more attractive).
  4. Offer a bulk price. Apparently, many customers don’t do the math to realize that buying five lemons for $1 is no better deal than buying one for 20¢, so they buy five even if they only need one or two (or even three or four!).
  5. Use non-round dollar amounts. Walmart is the best example of this. It sets a price at $2.28 and customers think they’re getting a better deal than if the price were $1.99. The non-round dollar amount makes it seem like Walmart has squeezed every last penny it can, when that might be far from true.

When it comes to pricing, buyer beware: Your irrationality is no secret to wily retailers.

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E-mail marketing: beauty and the beast

E-mail marketing is a cheap, easy way to reach potential customers and keep existing ones engaged. It’s tempting to create elaborate templates and designs to yield beautiful e-mails worthy of a top-notch marketing team. It’s just as easy to forget that those e-mails might not render as beautifully as you designed them, especially with the common practice of users disabling images as the default. Check out the following example …

What Four Seasons designed:

Here is what I saw when I opened it:

Moral of the story: You may have to sacrifice some of the beauty to ensure that your customers don’t get the beast.

Posted in Marketing, Product design, Usability | Leave a comment