Frustration-Based Promotions: Field Experiments in Ride-Sharing
42 Pages Posted: 25 Feb 2018 Last revised: 21 Mar 2018
Date Written: February 25, 2018
The service industry has become increasingly competitive. One of the main drivers for increasing profits and market share is service quality. When a consumer encounters a bad experience, or a frustration, s/he may be tempted to stop using the service and switch to the competitor(s). In collaboration with one of the leading ride-sharing platforms, Via, our goal is to understand the benefits of proactively compensating customers who have experienced a frustration. Motivated by historical data, we consider two types of frustrations: long waiting times and long travel times. In this paper, we examine whether a firm should proactively send compensation to users who have experienced a frustration. To this end, we designed and ran three field experiments to investigate how different compensation types affect the engagement of riders who experienced a frustration. We conducted ANOVA tests, regression analyses, and used a difference-in-differences approach to support our findings. We observed that sending proactive compensation to frustrated riders (i) is profitable and boosts their engagement behavior, (ii) works well for long waiting times but not for long travel times, (iii) seems to be more effective than sending the same offer to non-frustrated riders, and (iv) has an impact moderated by past usage frequency. We also observed that the best strategy is to send credit for future usage (as opposed to waiving the charge or sending an apologetic message). We performed several robustness checks to showcase the consistency of our results in two markets, two different time periods, and on several engagement metrics.
Keywords: Ride-sharing, Field Experiments, Promotions, Quality Management, Service Operations
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