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Customer segmentation revisited: The case of the airline industry

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  • Teichert, Thorsten
  • Shehu, Edlira
  • von Wartburg, Iwan
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    Abstract

    Although the application of segmentation is a topic of central importance in marketing literature and practice, managers tend to rely on intuition and on traditional segmentation techniques based on socio-demographic variables. In the airline industry, it is regarded as common sense to separate between business and economy passengers. However, the simplicity of this segmentation logic no longer matches the ever more complex and heterogeneous choices made by customers. Airline companies relying solely on flight class as the segmentation criterion may not be able to customize their product offerings and marketing policies to an appropriate degree in order to respond to the shifting importance and growing complexity of customer choice drivers, e.g. flexibility and price as a result of liberalization in the airline industry. Thus, there is a need to re-evaluate the traditional market segmentation criterion. By analyzing the stated preference data of more than 5800 airline passengers, we show that segmenting into business and leisure (a) does not sufficiently capture the preference heterogeneity among customers and (b) leads to a misunderstanding of consumer preferences. We apply latent class modeling to our data and propose an alternative segmentation approach: we profile the identified segments along behavioral and socio-demographic variables. We combine our findings with observable consumer characteristics to derive pronounced fencing mechanisms for isolating and addressing customer segments receptive for tailored product packages.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 42 (2008)
    Issue (Month): 1 (January)
    Pages: 227-242

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    Handle: RePEc:eee:transa:v:42:y:2008:i:1:p:227-242

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    References

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    5. Inglada, Vicente & Rey, Belen & Rodri­guez-Alvarez, Ana & Coto-Millan, Pablo, 2006. "Liberalisation and efficiency in international air transport," Transportation Research Part A: Policy and Practice, Elsevier, vol. 40(2), pages 95-105, February.
    6. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    7. Louviere, Jordan J, 2001. " What If Consumer Experiments Impact Variances as Well as Means? Response Variability as a Behavioral Phenomenon," Journal of Consumer Research, University of Chicago Press, vol. 28(3), pages 506-11, December.
    8. Swan, William M., 2002. "Airline demand distributions: passenger revenue management and spill," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 38(3-4), pages 253-263, May.
    9. Vermunt, Jeroen K. & Magidson, Jay, 2003. "Latent class models for classification," Computational Statistics & Data Analysis, Elsevier, vol. 41(3-4), pages 531-537, January.
    10. Jaehwan Kim & Greg M. Allenby & Peter E. Rossi, 2002. "Modeling Consumer Demand for Variety," Marketing Science, INFORMS, vol. 21(3), pages 229-250, December.
    11. Lindstädt, Hagen & Fauser, Bernd, 2004. "Separation or integration? Can network carriers create distinct business streams on one integrated production platform?," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 23-31.
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    Cited by:
    1. Hetrakul, Pratt & Cirillo, Cinzia, 2013. "Accommodating taste heterogeneity in railway passenger choice models based on internet booking data," Journal of choice modelling, Elsevier, vol. 6(C), pages 1-16.
    2. Bliemer, Michiel C.J. & Rose, John M., 2011. "Experimental design influences on stated choice outputs: An empirical study in air travel choice," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(1), pages 63-79, January.
    3. Vij, Akshay & Walker, Joan L., 2014. "Preference endogeneity in discrete choice models," Transportation Research Part B: Methodological, Elsevier, vol. 64(C), pages 90-105.
    4. Vespermann, Jan & Wald, Andreas, 2011. "Much Ado about Nothing? – An analysis of economic impacts and ecologic effects of the EU-emission trading scheme in the aviation industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(10), pages 1066-1076.
    5. Diana, Marco & Pronello, Cristina, 2010. "Traveler segmentation strategy with nominal variables through correspondence analysis," Transport Policy, Elsevier, vol. 17(3), pages 183-190, May.
    6. Torres, Ann M. & Barry, Chris & Hogan, Mairéad, 2009. "Opaque Web practices among low-cost carriers," Journal of Air Transport Management, Elsevier, vol. 15(6), pages 299-307.
    7. Hetrakul, Pratt & Cirillo, Cinzia, 2014. "A latent class choice based model system for railway optimal pricing and seat allocation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 68-83.
    8. Balcombe, Kelvin & Fraser, Iain & Harris, Liam, 2009. "Consumer willingness to pay for in-flight service and comfort levels: A choice experiment," Journal of Air Transport Management, Elsevier, vol. 15(5), pages 221-226.
    9. Martinez-Garcia, Esther & Royo-Vela, Marcelo, 2010. "Segmentation of low-cost flights users at secondary airports," Journal of Air Transport Management, Elsevier, vol. 16(4), pages 234-237.

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