The Cost of Discrimination
If you’ve flown recently I’ll bet you’ve noticed how many classes of customer the airlines have – First Class, Business Class, Premier Class, etc. For those of us seated in Coach, we presumably have No Class (at last, a classless society).
As aggravating as the aircraft boarding process may be (stand up, sit down, … repeat) airlines are merely segmenting their customers. They are playing favorites. They are discriminating! But don’t fault the airlines, and please leave the ACLU out of this battle. Airlines are only following a basic customer service concept… give the customer what they want. What could be simpler, right?
You’re reading this so you know the truth; customer service is not so simple in practice. Like all customers, we want what we want. We have certain needs and look for goods/services to fulfill those needs. The fact that you and I likely have different expectations is what makes things complicated.
If you’re asking yourself, “should we segment our customers?” one way to approach that question is to examine 4 dimensions to service.
- Function – Does the product do what it is supposed to do?
- Timeliness – Can I get it when I want it?
- Experience – Did the interactions I had to get the product meet my needs?
- Value – Is the value larger than the associated cost?
In the case of airlines, the fact that distinct classes exist implies that the value to them is larger than the cost of implementing the system.
- Function – Preferred customers get on planes first and are assured their carry-on luggage will come with them.
- Timeliness – Preferred customers get head-of-the-line privileges when flying standby.
- Experience – Here the experience is not much different than flying coach.
- Value – Some people pay to have preferred status, so it must meet their value equation.
The pivot point is that customer segmentation makes sense when 1) customers in various classes value the differentiated service and 2) companies can profitably manage such programs. Classic economics suggests that because we all value these dimensions differently, we would all be willing to pay different amounts to benefit from them. Thankfully, the airlines have decided the cost of perfect discrimination is not worth it. I can’t imagine where I’d sit if it were.
Leave a Comment July 24, 2009