“THIS POST IS SPONSORED”

February 16, 2018 cerendanis Leave a comment

Effects of Sponsorship Disclosure on Persuasion Knowledge and Electronic Word of Mouth in the Context of Facebook

They are everywhere. We all have seen one: a post on Facebook, Instagram or any other social media platform with a little sign saying that the post is sponsored. We see a celebrity enjoying a certain product and recommending it to the audience. We think to ourselves if the person in question is genuine in his or her motives of sharing it, whether they are actually using the product or whether we should follow their recommendation to purchase it ourselves and possibly share our newly found trophy with our family and friends. This simple everyday ritual we have with ourselves, sometimes multiple times a day, has prominent psychological mechanisms coming into play, guiding us through the journey starting from the recognition of the post as sponsored to eventually activating us to share it with our loved ones.

These psychological mechanisms lay the foundation of the research conducted by Boerman, Willemsen and Van der Aa (2017). The researchers identify the source of the sponsored post(brand or celebrity) as the initial step to recognizing it as carrying persuasive, or in other words, advertising value by consumers. This is defined as the activation of the conceptual persuasion knowledge, which in turn, activates the attitudinal persuasion knowledge. Attitudinal PK gets activated when consumers start developing critical and distrusting feelings towards the advertisement (Boerman, Van Reijmersdal and Neijens 2012). All these are used as determinants to find out whether the consumers eventually engage in electronic word of mouth (eWOM; cf., Berger 2014).

Designing the experiment

Building on the theoretical foundations mentioned above, researchers conduct an online experiment with 409 participants. A post with David Beckham drinking an Illy branded cup of coffee with the text ‘Starting the day with a nice cup of coffee!’ (posted by David Beckham) and ‘David Beckham starts his day with a nice cup of coffee!’ (posted by the brand) is shown to participants to test the following hypotheses by having participants answer a series of questions:

H1. A Facebook ad that is accompanied by a sponsorship disclosure (‘Sponsored’) will be more likely to activate consumers’ conceptual persuasion knowledge, than a Facebook ad without a sponsorship disclosure.

H2. A Facebook ad that is posted by a celebrity will be less likely to activate conceptual persuasion knowledge, than a Facebook ad that is posted by a brand.

H3. The effects of a sponsorship disclosure on the use of conceptual persuasion knowledge are stronger when a Facebook ad is posted by a celebrity compared to when a Facebook ad is posted by a brand.

H4. Source moderates the effect of the sponsorship disclosure on attitudinal persuasion knowledge through the activation of conceptual persuasion knowledge: The mediated relationship of the disclosure on attitudinal persuasion knowledge will be stronger when the Facebook ad is posted by a celebrity (vs. a brand).

H5. When a Facebook ad is posted by a celebrity, a sponsorship disclosure activates conceptual persuasion knowledge, which results in the use of attitudinal persuasion knowledge and ultimately lowers eWOM. When a Facebook ad is posted by a brand, such serial mediation is less likely to occur.

The figure below clearly outlines the experiment design and the source of the Facebook post as the initial stimulus.

Screen Shot 2018-02-14 at 18.06.39

Anticipated results

In line with the expectations, researchers found evidence to support all five hypotheses. They found that the conceptual and attitudinal PK activation was significantly different when the source of the post was a celebrity in the presence of a sponsorship disclosure. This was not the case when the ad was posted on Facebook by the brand. Activation of the attitudinal PK after recognizing the post as an ad resulted in consumers engaging less in eWOM as a result of the distrusting feelings they developed by recognizing the post as advertising. An interesting finding of the study, however, indicates that little attention is paid to the sponsorship disclosures. The study shows that 59% of the participants did not recognize the sponsorship disclosure which is also in line with previous studies conducted (e.g., Boerman, Van Reijmersdal, and Neijens 2012; Campbell, Mohr, and Verlegh 2013; Wojdynski and Evans 2016). Intuitively, this has an impact on the interpretation of the results. Even though the activation of the conceptual and attitudinal persuasion knowledge of the consumers will result in less engagement, lowering the perceived success of the ad, this does not directly condemn sponsored celebrity Facebook posts to failure since the majority of the people won’t recognize the post as an ad.

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Leveling the playing field

Although the study comes with its limitations due to its single product, brand (Illy coffee), celebrity (David Beckham) and geographical (conducted in the Netherlands) focus, it provides invaluable insights into the effect of sponsorship disclosures on Facebook posts. It seems the regulators’, such as FTC’s, disclosure requirements are not sufficient enough to level the playing field for consumers when it comes to social media advertising. Further research might reveal, however, how this could be overcome as well as consumers moving along the learning curve might become more aware themselves. Until then, better to think twice before you share that post by your favorite celebrity you saw on your newsfeed.

References

Berger, Jonah (2014), “Word of Mouth and Interpersonal Communication: A Review and Directions for Future Research,” Journal of Consumer Psychology, 24, 4, 586–607.

Boerman, Sophie C., Eva A. Van Reijmersdal, and Peter C. Neijens (2012),“Sponsorship Disclosure: Effects of Duration on Persuasion Knowledge and Brand Responses,” Journal of Communication, 62, 6, 1047–64.

Boerman, S., Willemsen, L. and Van Der Aa, E. (2017). “This Post Is Sponsored” Effects of Sponsorship Disclosure on Persuasion Knowledge and Electronic Word of Mouth in the Context of Facebook. Journal of Interactive Marketing, 38, 82-92.

Campbell, M., Mohr, G. and Verlegh, P. (2013). Can disclosures lead consumers to resist covert persuasion? The important roles of disclosure timing and type of response. Journal of Consumer Psychology, 23(4), pp.483-495.

Wojdynski, Bartosz W. and Nathaniel J. Evans (2016), “Going Native: Effects of Disclosure Position and Language on the Recognition and Evaluation of Online Native Advertising,” Journal of Advertising, 45, 2, 157–68.

Articles, Business Case, Mini Cases, Student Ideas

Would you mind filling out this survey?

February 16, 2018 sergio69swag Leave a comment

Many of us have struggled to find participants to fill out our bachelor’s thesis/dissertation survey. I remember logging in into Facebook and finding 5 to 6 “PM’s” (private messages) A DAY from classmates that have been abusing of the CTRL+C and CTRL+V command:

Hey “name”, how are you doing?
Could you please fill out my thesis survey? It’s about 5 minutes long and it’s completely anonymous. I can fill out yours if you want 😉

Good old days…

As bizarre as it sounds, I did not ask them to fill out my thesis survey back, but this is just because the sample of my thesis was ‘manufacturing companies‘, not students, not regular people.

However, if the respondents of my thesis were regular individuals, then I would consider spamming all the contacts of my Facebook friends list. However, this comes with some cons, first and mostly, annoying your friends… But I have good news for you!

Let me introduce you to the award winning start-up project “Survey Exchange”. Even though there have been identical platforms in the past, such as http://www.survey-x-change.com, these are either shut down or do not have very good Google SEO positioning because these type of pages are usually labeled as spam. As a mater of fact, when you try to log in via Facebook, even our beloved start-up has been denied from using Zuckerberg’s APIs or the developers have messed up somewhere in the Login code.

Our start-up has been operating since 2016 and has won multiple student entrepreneurship awards in the UK (Linkedin.com, 2018). As of February 16th 2018, Survey Exchange is the first result to show up when googling the search words “survey exchange” and according to its founders it has a potential market share of half million users in the UK alone (Survey Exchange, 2018), which I honestly think is a long shot, because it’s delusional to think that 100% of British students will adopt their platform before it gets shut down or labeled as spam website and get lost in Google rankings.

The dynamics of this business model are very simple yet very effective. This start-up relies on crowd-sourcing the filling of the surveys to the users of the platform in a #like4like fashion.

Like4Like is a popular hashtag on Instagram whereby users indicate their willingness to receive likes on their posts in exchange of liking other users posts back (hasthagdictionary.com, 2015). It has the same dynamics as Follow for Follow in Twitter and Sub for Sub (subscribe) in Youtube.

In this case, users of the platform have to create a free account in surveyexchange.co.uk and as the users fill out the questionnaires they will earn “Q points” based on the length of the surveys. The more surveys a user answers, the more Q points it will earn, which can be used later to request more responses for their own surveys.

The revenue model of the start-up is quite simple, it generates traffic by facilitating a crowd-sourcing platform for students that need to get their surveys filled in and shows them targeted GoogleAds advertisements in its website. In addition, as it can be be inferred from their privacy agreement, the crowd-sourcing platform is also planning to sell premium services and products that will require personal information (Survey Exchange, 2018). Such products and services are likely to be purchased “Q points” so that the users will get their crowd-sourced responses without having to fill out additional surveys.

The beauty of this business model is in its simplicity. Just setting up a platform where its users generate value by crowd-sourcing their own surveys in exchange of an equal amount of commitment. This is therefore a one-way platform where the value of the network grows in a Metcalfe’s law fashion as the number of the users increases.

Metcalfe’s law states that the value of a network is proportional to the square of the users connected to the system (Wikipedia, 2018). This is related to the fact that the number of total possible survey responses ‘n’ (assuming that each user has only 1 bachelor survey) can be calculated by n(n-1), which is asymptotically proportional to n^2.

If there are 2 users, that means that each user will get 1 response for their survey (you can’t answer your own survey), totaling 2 responses [2(2-1)=2]. If there are 4 users there will be 12 responses, if there are 8 users there will be 56 responses…

However, there are some limitations with the valuation of this platform. Not all users will be willing to respond to all surveys, and some users may even have more than one survey.

Users are not expected to stay in the platform for any time longer than their thesis/dissertation data collection process and therefore the traffic of the website is not expected to grow in such exponential fashion.

There are also obvious limitations when it comes to the quality of the answers of the survey, both in terms of reliability of the answers and in terms of validity of the sample.

Users that need large amount of responses are likely to give low quality answers without actually reading the questions in order to get as many Q points as possible within the shortest amount of time.

Another concern is that the owner of the survey has 0 control about the type of person that is filling the survey as at this point the platform does not offer the possibility to filter the responses by demographics nor by other type of variable. This could lead to a very heterogeneous convenience sample that may have nothing to do with the actual focal unit of the thesis/dissertation.

Additionally, due to the nature of this platform, users may abuse of the Social Media function, which allows a user to collect Q points via responses from friends, and get the site black-listed from important websites such as Facebook or Reddit because of the amount of unsolicited requests to visit a link.

Despite all those limitations, the crowd-sourced platform seems to be doing fine as the interface of the website has improved overtime and students do not generally care about the quality of their data as long as they can get it quickly and cheap.

At the end of the day, it is better to ask the crowd to fill out your survey in a negligent way rather than faking the responses yourself and risk to get caught of committing fraud.

Let me know in the comment sections what do you think about this business model. Is it sustainable? Do you think they will shut down their website like it happened to survey-x-change.com? Do you think it will get lost in Google’s search rankings due to being labeled as a spam website? Would you use it for your own thesis?

If the answer to the last question is yes, I encourage you to not make a comment 😉

Thank you for reading!

List of References:

Linkedin.com, (2018). [online] Available at: https://www.linkedin.com/in/jakub-zimola-706b01104 [Accessed 16 Feb. 2018].

Survey exchange. (2018). Survey exchange | Exchange your survey and get the right respondents. [online] Available at: http://www.surveyexchange.co.uk/ [Accessed 16 Feb. 2018].

Hashtagdictionary.com. (2018). #like4like | HashTag Dictionary. [online] Available at: http://hashtagdictionary.com/like4like/ [Accessed 16 Feb. 2018].

Surveyexchange.co.uk. (2018). Privacy Policy. [online] Available at: http://www.surveyexchange.co.uk/pdf/Privacy_policy.pdf [Accessed 16 Feb. 2018].

Articles

Missed another lecture? Don’t worry StudyDrive has got you covered

February 16, 2018 jescocvr Leave a comment

One of the biggest trade-offs students are facing in their academic career is going-out vs. going to the lecture. Some students want to join their friends for “just one drink” but somehow end up at Has at 6am and miss the lecture on the following day. On the other hand, there is also the ambitious student who comes to every class, takes notes and spends most of his time at university.

In the end, it doesn’t matter which type one is, as all students come to University to achieve the same outcome, namely, (hopefully) receive a degree at the end of their studies. In order to facilitate this process, StudyDrive has come up with a solution to make a students’ academic career easier.

What is StudyDrive?

StudyDrive is essentially a mediating platform created for students, which enables easy access to study materials. The platform allows students to upload their documents, as well as to access the work of their peers. Whether it is lecture notes, book summaries, past exams, everything can be uploaded and shared. The platform has similar features to Dropbox or WeTransfer, as it allows people to share documents in a fast and convenient way. However, it takes these features and adds a layer on top by organizing the study materials in a convenient way.

How does it work?

As a first step, a student is asked to sign up through either Facebook login or E-Mail address. Once this step is completed the student can select the University he or she is currently enrolled in. Next, the webpage allows the student to choose his area of study and exact program and starting year.

When the student has completed all of the previous steps he should be shown a list of all courses, which he is enrolled in. By clicking on one of the courses, he can access all the study materials and discussions related to this course, which have been uploaded by his (former) peers.

In order to ensure the quality of the uploaded work StudyDrive has created a governance mechanism in which peers assess each other’s work. Students can rate documents and communicate potential mistakes by commenting directly on the document.

However, the start-up has only been founded in April 2013 and heavily relies on network effects, which need to develop over time. This means that the more students join and actively participate the more students’ benefit from it. StudyDrive does not create any content itself. It only provides the structure of the website & app and server capacities for storing the content. This means that the list of courses, study materials, and reviews have to be created by the customers themselves (students).

What are the benefits of participating?

From the perspective of the lazy student missing lectures, the derived benefits are quite clear: Easy access to study materials. But how can StudyDrive motivate the well-organized and ambitious student to share his materials? In order to ensure this StudyDrive made use of an incentive governance mechanism (Blohm et al. 2018). StudyDrive hands out prizes in the form of credit points for students uploading documents, which can be exchanged for prices ranging from posters to iPads. Furthermore, there is a reputation system in place in which students receive karma points for reviewing the work of their peers to further motivate participants (StudyDrive 2018).

Where did StudyDrive originate and how does the company generate revenues?

Philipp Mackeprang, the founder, and CEO of StudyDrive developed the idea after sharing some documents with his former peers at the Maastricht University (Hahn 2014). Originally they used Dropbox to share their files, however, as they uploaded more and more files the site became confusing and difficult to manage. The founder, later on, decided to create his own platform.

One of the major difficulties he was facing was shaping the business model. He realized that students would not want to pay for such a site. However, through his time at University, he realized what great length companies go through to get in touch with students (Hahn 2014). He thus decided to approach potentially interested companies, and it was a success. StudyDrive managed to partner with around 400 companies such as KPMG, Roland Berger or EY. The partnering companies not only advertise themselves on the site but also use it as a recruitment platform by posting job openings or internship possibilities (StudyDrive 2018).

So far, the start-up has managed to offer their partners access to a base of more than 450.000 students, mainly located in Germany, Austria, Switzerland, and the Netherlands. However, StudyDrive is currently expanding to other European countries. The future is looking bright for the company, but how many more students and companies will StudyDrive manage to engage? Only time can tell.

Bibliography:

Blohm, I., Zogaj, S., Bretschneider, U., & Leimeister, J. M. (2018). How to Manage Crowdsourcing Platforms Effectively?. California Management Review, 60(2), 122-149.

Hahn, U 2014, Interview with Philipp Mackeprang of StudyDrive, in, Talkin’Business online magazine, viewed 16 February 2018, <http://www.talkinbusiness.nl/2014/10/interview-with-philipp-mackeprang-of-studydrive-getting-from-entrepreneurial-idea-to-successful-business/>.

Get rewards for your study documents – Studydrive 2018, viewed 16 February 2018, <https://www.studydrive.net/rewards>.

StudyDrive 2018, viewed 16 February 2018, <https://www.studydrive.net/for-companies>.

Business Case

GoFlow Surf: Crowdsourcing Waves

February 16, 2018 AlvaroFernandezGarcia12 Leave a comment

GoFlow is a surfing application which allows users to access life surf reports, upload pictures and videos, and contact friends and surf instructors. It was founded by 2 ex-professional surfers at Los Angeles, California, in 2012.

The need for GoFlow

Weather forecasts have become quite accurate thanks to technology, but wave forecasts are far more unreliable because they depend in many constantly changing factors. Wave conditions can change by hours and even by minutes, depending on the height and direction of the swell, the direction and strength of the wind, the tide, the wave period, and the sand underneath them which changes quicker than most people can imagine. Any person who surfs regularly has had uncountable disappointing experiences due to the unreliability of wave forecasts. Surfers often wake up before sunrise to catch the best waves and are often disappointed with bad conditions when they arrive to the surf spot. I think by now you get the idea of how unpredictable surfing conditions are, and GoFlow solves this issue with live surf reports thanks to the active contribution from all the surfers within a community.

Key characteristics of the business model

Value proposition: GoFlow satisfies the need for life surf reports, which printed surf guides or regular forecast apps (Surfline, Magicseaweed, etc.) cannot satisfy. A WhatsApp group is also not effective because it is not structured enough to show all the live reports of all the surfing spots, since there can be tens of surfing spots within a few kilometers of a coast line. In this app, surfers co-create live surf reports, therefore saving hours of frustration and unnecessary drives looking for waves. In order to understand the value of this app you have to realize that surfers are addicted to this sport and depend on forecasts and surf reports to either get surf sessions full of adrenaline or encounter disappointment and frustration. I can personally confirm this after surfing every day of my life from the age of 8 to 18.

Moreover, GoFlow provides many other functions. It is also like a ‘surfer Instagram’, where users can show their pictures and videos and attract/promote sponsors. Another section of the App is a platform to connect surf instructors with people that want to learn or improve their skills.

The Key Activities of the start-up are attracting users to increase the network effect and improving the app, which are also the main cost sources. The resources are the know-how to keep updating the app, and the $2 million rose by the start-up between 2015 and 2016 within 2 investment rounds (Crunchbase, 2018). GoFlow is free to download and does not charge for any of its functions because it is trying to attract more users to intensify the network effect. At the moment, its only revenue source is the advertising of the surfing apparel companies.

As a last note on the efficiency of the business model, the app does not have any legal burdens and it has methods in place to ensure that the contributions of the users meet a quality standard. For example, users gain a credibility status when their surf reports are reviewed as accurate by other people, and users with wrong intentions can be pointed out to be removed from the community.

The future of GoFlow

Online reviews claim the app is very user friendly and helpful, and it has around 100,000 downloads just over a year after the start-up raised its funding (Play.google.com, 2018). On the other hand, GoFlow is simply missing enough people to create a platform effect in many surf spots around the world. Nonetheless, it is showing its full potential in certain regions of California and Brazil, where plenty of active users enjoy the benefits of this app while co-creating value (Rizz, 2018). If GoFlow gains enough users across all the surfing regions of the world, it will be a huge platform which will attract not only advertisements from the surf apparel companies but also from other companies which try to identify their brand with surfing, such as Hollister, Jeep, Samsung, etc. Surfing is a continuously growing sport whose apparel industry alone is now estimated to have a value of $15 billion per year and is expected to keep growing (Beachapedia.org, 2018). Lastly, GoFlow is also trying to expand some of its platform functions to other outdoor sport and activities, such as skating or kite surfing.

References

Beachapedia.org. (2018). Surfonomics – Beachapedia. [online] Available at: http://www.beachapedia.org/Surfonomics [Accessed 16 Feb. 2018].

Crunchbase. (2018). goFlow Surf | Crunchbase. [online] Available at: https://www.crunchbase.com/organization/goflow-surf [Accessed 16 Feb. 2018].

Play.google.com. (2018). Cite a Website – Cite This For Me. [online] Available at: https://play.google.com/store/apps/details?id=goflow.app&hl=es [Accessed 16 Feb. 2018].

Rizz, G. (2018). goFlow: Share and Discover Waves with Your Friends. [online] The Inertia. Available at: https://www.theinertia.com/surf/goflow-establishing-a-social-surfing-community/ [Accessed 16 Feb. 2018].

Articles

Hip teens do(n’t) wear blue jeans

February 16, 2018 ronja185 Leave a comment

Did you know that each year, 135 million kilos of clothes are burned in the Netherlands alone? And that producing one regular pair of jeans usually takes up to 7000 liters of water? This makes fashion the second most polluting industry. Shocked yet? So was Bert van Son in 2013 when he founded MudJeans, which is why he decided to offer an alternative to fast fashion after 30 years in the industry. “Sounds nice”, you may think. But how, and more interestingly, at what price?

Take an eternal classic piece present in basically every wardrobe and combine it with two of the most important social trends of the last years – et voilà Bert’s idea. What I’m talking about? Leasable, environmental friendly produced jeans made of a combination of recycled and organic cotton as one of the newest interpretations of the circular economy and general sustainability awareness. Yes, you read right, leasable clothes. If it it works for your car, why not for your bottoms? For a monthly fee of €7,50 (for 12 months) and a one-time only payment of €20 to join the community, you get a pair of brand new jeans, which you can either chose to return after 12 months in exchange for a new pair or keep them until they are worn out and you’re sick of them.

Either way, MudJeans relies on you returning the jeans once you’re done with them – as a little bonus they even offer a €10 voucher (or one free month of leasing) for future use on the website and in their stores. And this even for jeans from other brands, as long as they are made of at least 96% cotton. This way, the company gets to upcycle and renew those jeans that are still in good condition to be reborn as a unique vintage pair, which is even named after its former owner (how cool is that?) and to recycle the less lucky ones to become brand new material for future seasons and models, i.e. the circular economy aspect. Normal return options for wrong sizes/ colors and even a free of charge repair service are also part of the game, and MudJeans even treats you to the shipping charges.

Bildschirmfoto 2018-02-16 um 13.32.55

Fig. 1: Product Lifecycle at MudJeans, Mudjeans.eu/about-mud-jeans (16.02.2018)

And what’s in it for you?

A great pair of jeans is like a best friend: reliable, boosting your confidence when it needs uplifting and always has your back (literally). But finding the right one can be tricky (duhh) and once successful, you may discover that the washing machine is not a great match for your young love, or simply that you grow distant after some intense months together. And then?

This is where MudJeans comes into play: instead of hoarding these memories as blasts from the past and letting them rot in your closet, you get to refresh your wardrobe without feeling guilty or even lumbering your closet. And this at a reasonable price. In addition, you basically get to save the world with 78% less water consumption compared to a regular pair of jeans, also due to 60% organic cotton used and 40% recycled jeans material*. Oh, and did I mention that they’re vegan?

Sounds nice, but..

I know what you think. Green fashion? Really? But in this case, green doesn’t have to exclude stylish. On the contrary, the #mudjeans community is full of young, hip individuals caring about the environment and the way they consume – which should include us all. And with their vintage jeans they even offer you the possibility to own a completely unique pair, for example with patches and/ or the destroyed look which you can select after choosing a color and size. For €68. Whilst sustainable fashion used to be unaffordable and/or “basic” to say the least, times have changed. With MudJeans, you have the possibility to contribute to a sustainable way of looking good – at a normal price. Contrary to fast fashion you furthermore know about where your clothes are being produced – and not only in which factory, but who owns it, how it looks inside, how many women they employ and even how many holidays employees get: Bildschirmfoto 2018-02-16 um 15.33.52

Fig. 2: Quick Facts about Production site, Mudjeans.eu/fair-factories-fair-wear-foundation (16.02.2018)

And apart from three sites in north Africa, this even takes place in Europe.

Bildschirmfoto 2018-02-16 um 15.08.25

Fig. 3: Excerpt from the #mudjeans community/ugc (16.02.108)

Where can I get it?!

Ok, calm down. I know it’s a great idea – so go on www.mudjeans.eu or visit one of their hundreds stores from Iceland to Melbourne and try it out yourself!

References:

MUD Jeans International B.V. (2018). No title. Retrieved February 16, 2018, from http://www.mudjeans.eu

Saarijärvi et al (2013), “Value co-creation: theoretical approaches and practical implications”. European Business Review

Carson et al (1999), “Understanding institutional designs within Marketing Value Systems”

Articles, Student Ideas

Consumer driven pricing and personalization in the airline industry

February 16, 2018 ninahoekstra28 Leave a comment

There are several ways for companies to distinguish themselves in the way they price their products and services. They can choose for group pricing, which segments customers in groups that tend to behave similarly towards prices. For example, customers can be grouped based on age (such as student discount), gender or living area. Another option is to use versioning: to offer a product line and let customers decide on the trade-off between quality and price. The last form of differential pricing is perceived as difficult to achieve, namely personalized pricing. This means each individual customer receives a personal price for a specific product or service (Schofield, 2018). You may think that, in an offline world, no customer would accept personalized pricing. Can you imagine buying bread and cheese at a grocery store, and the person in front of you pays less for the exact same groceries? However, in an online world, this method has become a lot more feasible. Actually, there is a large chance you have already experienced personalized pricing online. One of the most obvious examples is eBay: one of the first companies to implement personalized pricing with their worldwide market place platform. However, it is important not to interpret personalized pricing as dynamic pricing. The main difference between these two forms of pricing is the variables that determine the final price. In dynamic pricing, the variables that are taken into account are, for example, time of the day, available supply or competitors’ prices (Baird, 2017). Personalized pricing has a customer focus and is interested in a specific customers’ behavior. Companies use data analytics to identify characteristics of the purchase environment or the customer’s profile and behavior that impact their willingness to pay. Bertini and Kounigsberg (2014) argue that the success of personalized pricing depends on at least the following three factors. First, abundant, high-quality data is needed. Also, the companies need to overcome various organizational challenges that come hand in hand with dedication to advanced analytics. Last, companies should be prepared to deal with customers who claim that the pricing approach is not fair.

Airline industry

One of the largest industries that divides consumer groups and price accordingly, is the airline industry. Different fares are charged for the exact same product, based on a market segment’s perceived ability to pay. For example, business travelers tend to pay more for their ticket as compared to leisure travelers, even when they fly the exact same route (Sumers, 2017). The key success is working to learn what the customer needs. Lufthansa, the largest European airline in teams of fleet size and passengers carried in 2017, is testing various approaches to better understand their customers. For example, they have deployed Bluetooth beacons and sensors, to be able to send out real time messages to their customers. When a targeted customer goes through security and has Bluetooth enabled on their phone, the personalization process is started. Or as Lufthansa calls it, the “Big Data Engine”. This program checks a traveler’s mobile boarding pass and looks at how much time the traveler has left before departure. If it is more than a set amount of time, the system examines the traveler’s profile in order to determine whether the customer would be interested in the “Miles and More” program, a discount for access to the airport lounge. This information is combined with the data from the sensors in the lounge, that register whether and how much space is left in the lounge, in real time. This lounge promotion program is part of SMILE., a companywide program that is dedicated to personalizing travel (Lufthansa, 2018). Companies can also use traveler data to offer two or more products or services as a package, increasing profits as it allows companies to appropriate a larger share of customer surplus, known as bundling (Hinterhuber and Liozu, 2014).

Future chances

Although airlines have quite an advanced personalized pricing and recommendation system, there is more potential to be revealed in the future. Lufthansa is working on larger projects that try to develop a Netflix-style algorithm that seeks to guess where its most frequent flyers would like to go to next (Sumers, 2017). The airline then offers a personalized price and ticket to this customer, and further develops its algorithm using customer data. For airlines to stay competitive, they need to keep a close eye on the current and future changes in the market. First of all, airline companies should fully embrace innovation. Data should be used not only to cut costs and to be able to deliver the cheapest flight tickets, but also to facilitate new customer experiences and deliver more personalized services. This leads to an increase in importance of brand loyalty, as consumers are more closely connected to the airline that is best at personalizing their prices and services. Last, the mobile wallet should be seen as the central hub for the digital consumers. Mobile transactions are a lot richer in terms of data collection and analysis, and it provides access to end-consumers, which can drive more sales (Popova, 2016)

Sources:

Baird, N. (2017) “Dynamic vs. Personalized Pricing”, https://www.rsrresearch.com/research/dynamic-vs-personalized-pricing, accessed at 13^th of February 2018.

Bertini, M. and Koenigsberg, O. (2014) “When Customers Help Set Prices”, MITSloan Management Review, accessed at 14^th of February 2018.

Hinterhuber, A. and Liozu, S. (2014) “Is innovation in pricing your next source of competitive advantage?” Elsevier Inc, accessed at 14^th of February 2018.

Lufthansa (2018) “Official website”, http://www.lufthansa.com, accessed at 14^th of February 2018.

Popova, N. (2016) “Has Personalization of Passenger Experience Entered a Critical Stage?”, https://skift.com/2016/12/29/has-personalization-of-passenger-experience-entered-a-critical-stage/, accessed at 14^th of Febuary 2018.

Schofield, T. (2018) “Price discriminations: definition, types, and examples”, https://study.com/academy/lesson/price-discrimination-definition-types-examples.html, accessed at 13^th of Febuary 2018.

Sumers, B. (2017) “Airlines Become More Sophisticated With Personalized Offers for Passengers”, https://skift.com/2017/02/03/airlines-become-more-sophisticated-with-personalized-offers-for-passengers/, accessed at 14^th of February 2018.