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Wednesday, June 27, 2012

How Orbitz Success and Failure With Data Mining Impacts Sports Organizations


            It has been a tough few weeks for users of Mac computers. First, Apple had to revise its official stance on its computers’ ability to prevent all viruses when 600,000 Macs were infected with a various called “Flashback” or “Flashflake”. Then, The Wall Street Journal reported that Orbitz was showing Mac users “different, and sometimes costlier, travel options than Windows visitors see.” Orbitz decided to use this segmented pricing strategy because it found that customers who use Mac computers spend up to 30% more per night on hotels because they were more likely to book four and five start hotels. This equated to $20-$30 more per night in bookings. Providing Mac users with higher priced hotels as the default option likely meant more revenues for Orbitz.
            Orbitz discovered that Mac users generated more revenue after reviewing purchasing behaviors of their customers. Only by having and mining the data did Orbitz identify a new opportunity to create a different customer buying experience for a particular demographic – in this case Mac users.
            Sports organizations can follow Orbitz example to try to maximize the revenue coming from more lucrative demographics – particularly when it comes to in-game attendance. Pricing has traditionally been a tricky problem for sports organizations to solve. In the past, many sports organizations have predominantly priced season and individual game tickets at the beginning of a season or academic year. Yet, demand for tickets is rarely static for a variety of reasons (i.e. team performance, rise of star players, weather, etc.). Therefore organizations have often not been able to capture the value that comes with the fluctuation in demand for tickets to games, events, or contests.
            The rise in popularity and security of the secondary ticket market created by companies like Stubhub has shown how ticket holders and organizations can monetize changes in demand. In addition, numerous sports organization, most notably the San Francisco Giants, have implemented dynamic ticket pricing technologies from companies like Qcue that monitor ticket demand and change pricing for individual game tickets.
            However, the secondary ticket market and dynamic pricing are more macro targeting strategies focused on increasing gameday revenue from a larger audience. from numerous different types of consumers for a game.  What Orbitz has done is implemented a microtargeting strategy focused on one specific demographic – in this case Mac users. B6A has written about a microtargeting in a previous post, but Orbitz shows exactly how sports organizations can use this practice to generate revenue. More importantly, it shows the affects of being able to collect data from online users who are making purchases on the company’s website. Sports teams and leagues often receive a significant amount of traffic to their sites both during the season and during the offseason. It is critical for organizations to capture this information using some form of analytics platform (most sites use some form of Google Analytics) to better understand and predict consumer behavior in similar way that Orbitz had done with Mac users.
            While it should be credited for using data mining to increase revenue from a specific demographic, Orbitz communication strategy has not matched the success of its new pricing tactics. A Reuters article proclaimed “Orbitz Sends Mac Users to More Expensive Hotels” and claimed “You have to pay a premium if you're a Mac owner.” CNBC asked is this “smart marketing or can it be perceived as misleading?” while Apple focused blog 9to5 Mac started its post about the topic by saying “Smug Alert: Orbitz shows Mac users higher priced hotels by default”. Upon hearing the news, many Orbitz customers left critical Facebook comments including “You hide the cheaper hotels so basically you are misleading the Mac customers. HOW DARE YOU!! I will never use Orbitz again!!!"
            CEO Barney Harford led Orbtiz efforts to try and complete damage control after the release of The Wall Street Journal article by focusing on how the new policy would enhance the overall user experience. For example, he stressed that Orbitz was improving its recommendation engine to provide its users with the best and cheapest options. For Mac users, four and five start hotels often better fit their lodging preferences. Yet, the company’s efforts at crisis management were mostly reactive and even though it knew article about this controversial pricing tactic would be published (its Chief Technology Officer was quote by The Wall Street Journal). By this point, the damage had been done and Orbitz has done significant damage to its brand that likely surpasses its potential increase in revenue.
            Sports organizations should take note of what can happen when an effective revenue generating tactic is not accompanied by an effective communication strategy. The lesson learn from Orbitz should not be throw the baby out with the bath water – i.e. do not complete data mining because their could be negative reaction to the results. Organizations should do the best possible job of anticipating criticism to determine the best proactive and reactive responses to potential criticism. By completing a thorough audience analysis of all key stakeholders (i.e. fans, media, sponsors, and employees) before implementing a decision based off data mining, sports managers can more likely mitigate blowback and fully take advantage of new revenue generating opportunities.  

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