Using data to segment products and customers may not breed airline satisfaction

 

Peter Fader flies a lot.

The Wharton School marketing professor has the highest frequent-flyer status on a certain airline, often earning him first-class seating, but he flew coach a few summers ago with his family. This discrepancy in his typical seating data must have triggered an alert to the flight crew. Once all passengers were seated, one of the pilots came back and greeted Fader, remarking on what a valuable customer he was.

“We know that you usually fly first class with us, and deservedly so,” Fader recalls the pilot saying. “But we appreciate having your whole family with you and want to make your flight as special as possible, despite being in coach.”

His children seemed impressed with their father’s status on the airline, but Fader’s mind quickly turned to the passengers around him.

“This is just weird,” he thought. “Don’t embarrass me.”

A gesture intended to preen one customer’s feathers may have instead ruffled those of others. Fader’s brief and otherwise innocent encounter with the pilot illustrates a marketing paradox: reams of customer data may not yield high customer service scores.

Airlines collect an incredible amount of passenger data, but it hasn’t helped the industry’s notoriously mediocre customer service scores. This conflicts with the marketing concept that more customer data creates more personalized experiences and greater satisfaction. Headlines decrying violently deplaned passengers suggest 2017 was a particularly chafing year for airline passengers, with customers forced to meet puritanical dress codes before boarding, removed from overbooked flights and squashed into ever-shrinking seats.

If airlines tuned out the siren song of customer data and segmentation, they would see that flying isn’t an individual experience, it’s communal. It stands to reason that members of a flight can only be as happy as the least happy customer. While it’s important to make the most valuable passengers’ experiences the best possible, airlines need to use data to lift morale for all customers, rather than a select few.

When Bad Analytics Happen to Good Passengers

Fader’s personal experience shares a thread with that of United Airlines passenger David Dao, who was physically removed from an overbooked flight last year. Both interactions were based on customer data.

Which passenger gets bumped from an overbooked flight is an automated decision, according to United’s report on Dao’s viral incident, and loyalty and money factor into the decision. Passengers who pay the least for their ticket are first in line to be bumped involuntarily, and those in United’s MileagePlus frequent-flyer program aren’t bumped unless everyone on the plane has status, in which case those with the lowest status get bumped first.

The airline industry may be the only place where segmentation determines whether customers receive the service they paid for. Imagine purchasing a meal at a restaurant but being denied that food because there isn’t enough for everyone. The more loyal customers receive the meal; you have to come back and eat at a less-convenient hour.

It’s not difficult to understand why airlines focus on their most valuable customers’ data and experience. According to Investopedia, business travelers make up 12% of passengers, but they are typically twice as profitable for airlines. Business passengers sometimes represent 75% of an airline’s profits. First-class and business tickets can cost as much as 10 times the price of coach tickets. Luring and keeping business customers makes more economic sense than focusing equally on all passengers—or so it would seem.

Dao’s forced removal, justified by the company’s algorithm that identified him as one of the least valuable people on the flight, highlighted the negative cost of such competitive customer segmentation. United Airlines’ social sentiment fell almost 160% within 48 hours of the incident, according to Brandwatch, and United Continental Holdings’ stock was off about 4% in the immediate aftermath, knocking close to $1 billion off the company’s market value.

Yet airlines continue to focus on how they can slash conveniences for those unwilling to pay a premium. Data support this strategy. A Reuters/Ipsos opinion poll released in mid-2017 found 83% of Americans put ticket prices among their top considerations when booking personal travel, outweighing travel perks or airline reputation. Sixty percent said they would not pay extra to avoid being assigned a middle seat, and 52% said they would not pay more to fly on their preferred airline. 

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