Truck and Barter

I don't think that the intention is to get a few extra dollars out of indecisive people: I think the supposition here is that the prospective customer has some specific need or strong desire to travel between points A and B on date C.

In this situation, the challenge is to get the customer to act now, before the meeting/family reunion/vacation/whatever is cancelled or before he decides to just drive. Raising the price a small amount might do this; I understand that this and similar things are time-honored tactics in the used-car trade.

On the other hand, if you gently lower the price, the customer will remain on the bubble, so to speak, waiting for an even lower fare: he might even wait long enough that all the seats within his hard price range are actually sold out. And in any case after word got out that the fares consistently decreased if you kept searching, everyone would do multiple searches, increasing the load on Expedia's system and thus their costs.

The travel industry, through its opaque pricing, has put itself in a situation where its customers are particularly worried about being ripped off (here's another similarity to the used-car lot), and where they'll dither around because the prices appear to have quite a bit of randomness in them. By making them rise consistently for the indecisive, they remove some of the apparent randomness without having to give up their precious opacity.

Of course, this is a potentially disastrous approach if you're trying to capture a few extra customers who are particularly price-sensitive.

The smart thing to do would be to take into account what the customer has booked in the past, and what he's doing right now. The customer going to Hilton Head for the weekend is more likely to be making a discretionary, and thus more price-sensitive, trip than the guy going to Akron for 24 hours in the middle of the week. You can much more safely kick the Akron traveller in the pants than you can the Hilton Head guy without losing the sale altogether.

Comment by tino at May 10, 2005 11:29 AM | Permalink

Of course they want to squeeze the last marginal dollar out of people who shop arround - but how?

Well ... if you check a fair on Expedia and then come back again later, odds are you checked other services in the meantime. And didn't find a what you were looking for elsewhere.

If you came back multiple times you might be more concerned about flight times or dates or seat location or other non-fare flight factors - after all, if you'd seen the combination of factors you wanted you would have booked before your 4th or 5th visit. If you cared about price and nothing else you probably would have found the lowest one before then.

So Expedia is betting it can 'raise' the price because mulitple checks of the same flight have signaled that you are relatively price-insensitive.

I have no travel industry connections but I have a lot of haggling experience. The happy haggler is one who finds a motivated BUYER.

Jos -- the interstitial search on other sites is an interesting point, and one I had not thought about. Though I'm not sure it follows that the person is thus more price-insenitive. In fact, if the person is willing to spend time searching for the best fare, wouldn't that indicate that the fare price is among the most important factors in the buying decision?

You can easily locate the lowest fare on a couple of cycles of searching.

All these services print fare prices in great big typefaces so they are very hard to miss (and flight detials in little tiny ones). Most people are pretty well accustomed to snapping up a bargain as soon as they find it. The old familiar "Act NOW! Supplies cannot be gauranteed".

Its on the 3rd, 4th, 5th pass through in short period of time that you are identifying yourself as someone who may be relatively price insensative because you are looking at layover times, flight duration, etc.

I'm a cheapskate but even I'dd pay $20 or even $30 extra to cut total trip duration from 4 hours down to 2 and half. My mom, who's in her sixties and on a more limited budget than I would pay even more.

Sure, there's other reasons to consider as well.

If you search often in a short time they may simply have conclude that you are a bot that somehow got through their screens. Rather than risk a lot of anger by blackballing a good customer who may or may not be a bot, they might just jack the price to keep you from continueing to make repeated passes through the system, which would create much less anger to a potential real customer than a full-on blackballing.

I don't think that's likely but its a possibility.

Even among economy fliers there are at least two different segments - (A) people for whom price is everything, and (B) people for whom price is most important but not everything.

Airlines have long used the various flight restrictions and weekend stay requirements and the like to take advantage of the two segments.

It could be that someone has found and additional way to recognize, and capitalize, on the (B) segment.

The beauty of it, from Expedia's standpoint, is that the more uncomfortable the arilines make economy class travel, the more people find are willing to spend a little extra to reduce their exposure to air transport system.

Expedia gains by finding out who is relatively price insenstive AND has away to generate superior returns from an increasingly inferior underlying product - if it can find a way to figure out who's in the ever growing segment (B) ...