Upgrade auctions

Getting moved from coach to the front of the plane is one of the nicer things that can happen on a long flight. If you a lot (especially on full fare tickets), getting upgraded can be a routine occurrence. Of course, that raises the question of why airlines pretty much give upgrades away. Yes, it makes sense to take care of really good customers particularly when moving someone up to business class costs the airline very little. But there is no guarantee that high status frequent flyers necessarily want the upgrade more than some more lowly coach passengers. That is, Mr Executive Platinum may not be willing to pay more than Ms. No Status for the privilege of escaping the cattle car.

Now Ms. No Status may get her chance to score an upgraded if she is willing to open up her wallet as several airlines are starting to auction off upgrades (Flier Auctions: Better Seats, Going Once, Going Twice…, Wall Street Journal, Apr 24).

Airlines overseas have started auctioning off upgrades, with travelers in economy or premium-economy cabins bidding against each other for seats that offer better space, food, service and sleep. Bids for premium seats that otherwise might fly empty begin online weeks in advance and typically close 48 hours before takeoff. The company behind the auction technology says it may come to the U.S. soon.

So far, airlines say travelers end up spending more for upgrades in online auctions than they would spend at check-in. Unlike a casual offer at an airport kiosk, the auction system can generate excitement as fliers strategize about how to win.

“You can buy the cheapest ticket and still have a chance of sitting in business class,” said Danny Saadon, North America vice president for El Al Airlines, where the average winning bid for a business-class upgrade is $800. That’s a deal when the airline’s business-class tickets cost anywhere from $3,000 to $10,000 more than coach.

Different airlines run the auction in different ways since the system from Plusgrade, a New York City company, allows flexibility. An airline can choose who can participate in the auction so it may choose to offer the opportunity to bid to all customers or only those that bought in a particular fare class or to those that meet a certain profile. Besides access to business class, El Al also auctions off empty middle seats to those in couch want some extra elbow room.

I’ll gladly pay you Tuesday…

A dollar today is worth more than a dollar tomorrow so it is not surprising that firms would prefer to defer paying suppliers for as long as possible. As the Wall Street Journal tells it, many large firms like Procter & Gamble and DuPont are working to redefine “as long as possible” when it comes accounts payable (P&G, Big Companies Pinch Suppliers on Payments, Apr 16).

What began as a way to preserve cash when markets dried up a few years ago has become a means of freeing up money to fund expansions, buy back stock and support dividend payouts at a time of lackluster sales growth and shrinking profit margins.

P&G is actually late to this game. It currently pays its bills on average within 45 days, faster than the 60 to 100 days that other consumer products makers and large companies in other industries generally take, according to industry experts. The company is looking to move its payment terms to 75 days and recently started negotiations with suppliers, people familiar with the matter said.

Big Data meets HR meets Call Center Management

We have already written in the past about the use of data analytics to best route customers to agents based on demographics and other characteristics.  The NY Times has an interesting article on the use of data analytics to improve retention and employee-employer relationships (“Big Data, Trying to Build Better Workers“)

The article discusses the broader appeal of these ideas, but focuses on applications to call centers. Why call centers? In contact centers, customer service agents, that are hourly workers handle a steady stream of calls under challenging conditions, yet their communication skills and learning capabilities play a crucial role in determining both the employee’s tenure and performance. The article discusses a new startup, Evolv, which helps firms find better-matched employees by using predictive analytics.

Transcom, a global operator of customer-service call centers, conducted a pilot project in the second half of 2012, using Evolv’s data analysis technology. To look for a trait like honesty, candidates might be asked how comfortable they are working on a personal computer and whether they know simple keyboard shortcuts for a cut-and-paste task. If they answer yes, the applicants will later be asked to perform that task.

Waits at the Beijing airport

All this week I have been traveling in China with a group of Kellogg faculty. It has been a fascinating trip as we have met with officials from several government agencies, executives from a variety of companies, and colleagues from the Guanghua School of Management. I have never been to China before so I have been trying to take everything in as we have gone around Beijing and Shanghai. This sign caught my eye as we were going through the Beijing airport.
I like the way they have chosen to present the wait time information for clearing security. It got me wondering why American airports don’t try reporting similar information. If nothing else, being clear about the targets would help set expectations for how long passengers should expect to be in queue. Of course, in the US, the people running the airport do not control how TSA agents are scheduled. Nor do they determine how many officers are managing the immigration desks (another piece of data on the sign).

Fallen Arches: Fixing service at McDonald’s

What counts as good service at a fast food restaurant? Speed obviously matters but what about staff interactions? No expects a quick service restaurant to have a Zagat’s rating (although some Chicago hot dog stands are graded) but can fast food service slip so much that customers notice?

Apparently the answer is yes, and furthermore McDonald’s hasn’t been doing so well in delivering service (McDonald’s Tackles Repair of ‘Broken’ Service, Apr 10).

But achieving speed and friendliness of service across the chain has been a particularly elusive goal, at least in part because about 90% of McDonald’s restaurants in the U.S. are owned by independent operators.

In QSR Magazine’s annual Drive-Thru Study, the only comprehensive industry comparison of customer service at fast-food chains, other restaurants have consistently outperformed McDonald’s in those areas. In last year’s study, the average service time at the McDonald’s drive-through studied was 188.83 seconds, compared with 129.75 for industry leader Wendy’s Co.  Chick-fil-A had the top friendliness ratings. Out of the seven major chains in the study, McDonald’s was second to last in the “very friendly” ranking, just above Burger King.

So what are the root causes of the problem and what can they do about it?

Education, Online Learning and MOOCs

There is so much talk and doom about the “ending” of traditional education by the disruptive innovation of online learning and massively open online courses.  I can’t help but to think back to the end of the 1990s and the first boom & bust in ecommerce, as illustrated by Webvan delivering a pack of gum from Oakland to San Jose for less than $1…

When it comes to education, though, we must distinguish between learning and signaling.  All debate and hype is about the learning but I have not heard anything about the latter, which I believe is at least as important (for better of worse).  Just ask any parent (whose kid now just heard about college acceptance) about the strength of their desire to be admitted to certain institutions.  We seldom hear the point that their kid will learn more at that desirable institution; so what is its attraction? Signaling (as Nobel laureate Spence wrote about quite a while ago).

Admittedly, this distinction pertains mostly to top or “brand” schools, whose value proposition of the degree is signaling selectivity—that will not change by MOOCs or any online learning.  The desire to signal uniqueness and distinction (and to self-classify as the BCC wrote about recently in their study and poll of “class” in the UK) is so human it is timeless.  Add to that the desire to be surrounded by similar people or those one looks up to, and the opportunity to build lifelong relationships and networks, and to belong (to the club). Traditional US higher-ed is the best in the world to respond to these desires.

Managing a harbor wait list

I live in Wilmette, the village just north of Evanston. It is a pleasant place if a little sleepy. However, we currently have a controversy brewing over Wilmette Harbor. The harbor is where the North Shore Sanitary Channel enters Lake Michigan. To quote Wikipedia, “The North Shore Channel is a drainage canal built between 1907 and 1910 to flush the sewage-filled North Branch of the Chicago River down the Chicago Sanitary and Ship Canal.” Of course, that quote doesn’t quite do justice to the harbor. Where the channel meets the lake, there is a lock that keeps the nasty stuff out.  Wilmette Harbor is actually a picturesque place with a Coast Guard station and space for 300 or so boats.

The kerfuffle is all about who will run the harbor. It is owned by the Metropolitan Water Reclamation District (MWRD), a regional government entity tasked with maintaining water quality, not accommodating boaters. Hence, they have outsourced the management of the harbor. For the last 75 years, the Wilmette Harbor Association has had the gig. The Wilmette Harbor Association’s lease has expired and they and other parties have bid to run the harbor, notably Wilmette Harbor Management. Following a murky process, the staff of the MWRD recommend the Wilmette Harbor Association’s bid be accepted even though it was lower than Wilmette Harbor Management’s. The MWRD’s commissioners voted against granting Wilmette Harbor Association the lease and now it is uncertain whether the harbor will be open this summer. For Chicago Tribune articles on this soap opera, see here and here.

I don’t own a boat so don’t have a whole lot at stake in this fight. However, there is an interesting operations question at the heart of the conflict. The Wilmette Harbor Association and Wilmette Harbor Management have very different ideas about how manage the queue for slips at the harbor.