Florian v. Wangenheim & Tomás Bayón
Executive Summary
If you have ever been "bumped" from a flight or had your seat downgraded from first class to coach, you have been a victim of revenue management, an approach that airlines (and other service firms) use to maximize revenue by systematically overbooking capacity, anticipating that customers will cancel or fail to show up.
Airlines' revenue management systems calculate how much to overbook by factoring in the costs of compensating bumped or downgraded passengers. What effects do these downgrades or denials of service have on customers' subsequent flying behavior? If customers buy fewer tickets from the airline after being downgraded or bumped than they otherwise would have, revenue management systems are due for change.
To determine whether jilted customers subsequently reduce their buying behavior and, in addition, whether upgraded customers subsequently increase theirs, the authors investigate the effect of denials of service, downgrades, and upgrades on the customer usage patterns of a major airline. Customers who experienced negative consequences of revenue management (downgrades and denials of service) significantly reduced their transaction and spending behavior, and upgraded customers exhibited only weak positive responses. In addition, major behavioral differences were observed among different customer groups: Higher-status customers ("gold–level" frequent flyers) responded most negatively to negative incidents and not at all to positive incidents, whereas lower-status customers hardly lowered their spending and transaction behaviors at all in response to negative events, but they increased it slightly after receiving courtesy upgrades. Notably, negative effects were strongest among customers who were downgraded rather than bumped.
The strong and lasting negative effects of denied boarding and downgrading on usage levels are worth incorporating into revenue management models. In addition, linking customer databases to booking systems could allow an airline to control not only the proportion of overbookings per flight but also the proportion of overbookings per customer status, decreasing the likelihood that higher-value customers will experience negative events.
Biography
Florian v. Wangenheim is Professor of Services and Technology Marketing in the TUM Business School at Technical University Munich, Germany. His research appears in Journal of the Academy of Marketing Science, MSI Research Report Series, Journal of Business Research, Journal of Service Research, European Journal of Marketing, International Marketing Review, and Journal of Relationship Marketing, among others. His research interests are in customer management, technology-mediated services management, and solution marketing.
Tomás Bayón is Associate Professor of Marketing at the International University in Germany, Bruchsal. Currently, he also serves as the managing director of this institution. He has published in Journal of the Academy of Marketing Science, European Journal of Marketing, MSI Research Report Series, Zeitschrift für betriebswirtschaftliche Forschung, and Marketing–Zeitschrift für Forschung und Praxis, among others. His current research focuses on customer life-cycle analysis and the assessment of customer relationship risk, customer equity management, and the marketing–finance interface. He has several years of strategic marketing management experience gained at a large car manufacturer.
Journal of Marketing, Vol. 71, No. 4, October 2007
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