Air New Zealand Bidding for Better Seats Dan DeWees Sam Djahanbani Justin Widjaja

Marketing Strategy “Economy and Premium Economy customers are invited to place a bid to upgrade to the next cabin class by nominating the dollar figure they would be prepared to pay. Customers whose bids are successful are advised a couple of days before travel.”

Benefits for ANZ Decrease the number of unsold premium seats, thus increasing profit yield Effectively price discriminate and extract full demand price from consumers instead of setting a price where some customers are willing to pay more Get data on what customers are willing to pay in case they switch back to a fixed fee

Benefits for ANZ’s Customers Encourages customers to use their reward points! Can get business-class upgrades with reward points, not cash Possibility of paying less Some customers will bid less than the previous fixed cost and if they win, they pay less than they would have 1)It seems counter-intuitive, but customers should use their rewards points rather than saving them forever. Airlines continually make the rewards cost more and more points so customers will use them. (It is a big liability on the financial statements for airlines when customers save up tons of reward points).

Challenges for ANZ Possible customers underbid the value Loss of customers may occur due to: Resistance to change Unwanted hassles Tough to value the upgrade as customer

Challenges for ANZ’s Customers Degrades the reward program Hassel to book early and make the bid Hassel to wait for seat confirmation Difficult for customers to value the upgrade 1)It seems counter-intuitive, but customers should use their rewards points rather than saving them forever. Airlines continually make the rewards cost more and more points so customers will use them. (It is a big liability on the financial statements for airlines when customers save up tons of reward points).

User Comments Auction Fan – As discussed earlier, using a second price auction will allow consumers to (theoretically) have the most utility and encourages bidding Frequent Flyer and Deweese3 (no relation) – This customer is absolutely correct, and ANZ should make it up to its loyal customers, maybe by giving them a better rewards plan or by only forcing non-rewards customers to bid

Measuring Success Air New Zealand should measure success by: Increase/decrease in profit over a long enough time frame (not including the fixed costs incurred to change the program) Customer satisfaction if profits are relatively unchanged (likelihood of retaining customers)

Chances of Success The program is ??? likely to succeed. Overall, the program will likely not change much in terms of profit as customers will likely not bid much higher than the previous fixed cost

Possible Improvements Limit the number of auctioned seats Potentially use second-price auction, which benefits consumers Make the benefit harder to earn or increase the price of the benefits Allocate a certain number of upgrades and make them available for purchase by loyalty members only