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June 27, 2012

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Not surprising at all, if you're willing to spend the extra cash to buy an overpriced computer, you've probably got extra to spend on a nicer hotel room.

You need a dose of econ 101: it is just such "signals" which implement "segmentation". Do you think segmentation happens spontaneously, the way people thought flies appeared before science told them otherwise? The seller ideates sections of the demand curve, and poof!, there they are, money clutched in their hot little hands?

No... It requires data to split the demand curve on characteristics which place buyers in each's particular point. So, yes Orbitz (whether using R or not), reads "Mac, more middle class, ergo expensive room". You're attempting to make a distinction that doesn't exist. Not sure why, either? Corporations exploit asymmetric information (because they can afford it, Wall Street is the poster child for exploiting financial advantage) as a matter of course; why defend Orbitz, in particular? While, in this case, the segmentation may be harmless (Mac owners may well prefer to see more expensive lodging than lowly Acer users; I wonder what linux users get, Motel 6?), it is done on purpose.

Yes, you can use predictive analytics to define segments, but as I understand the term from a marketing point of view, "segmentation" means targeting a well-defined sub-population of your market. This can be via a specialized marketing campaign, or a special offer. That's not the case here: Mac users aren't treated any differently than an other segment. Each *individual* user (again, as I understand the process from the Orbitz presentation) gets a different ranking of search results based on the predictive model. It's even possible for a Mac user to have lower-cost hotels ranked first, if other signals in the model indicate that would represent the most likely purchase for her (a Super 8 regular for example). That's what I meant when I said this isn't segmentation, because "Mac users" is not a defined segment.

I actually tend to agree with Robert, though with a much more cordial tone :-) But "mac users" actually is a very well defined segment, especially since Orbitz as a website knows which OS (or browser, at least) each user is using. More importantly, I disagree that segmentation refers to targeting well-defined groups. Really, segmentation is any kind of differentiated product offering, messaging, marketing, or just about anything based on characteristics of the customer. Back in the day, targeting wasn't nearly as precise as it is today, especially on the web, so you had to break your customers into a few key groups and say "we're going to go after group A this way, group B that way, and group C we're not going to target." The consulting firm I was with out of college made a boatload doing exatly that. But with a site like Orbitz, there's no need to be that discrete and the whole thing happens on the fly, so the distinction between signal and segmentation becomes very unclear.

Have a look at this Wiki article: http://en.wikipedia.org/wiki/Consumer_surplus The purpose is to extract as much of consumer surplus as the law allows; market segmentation is the surgical instrument used. I didn't mean to be uncordial, but market manipulation, globally, is a pet peeve. What Orbitz does could be (again, could) seen as of a piece with phishing. The linked piece on price discrimination provides the gory details: http://en.wikipedia.org/wiki/Price_discrimination , there's even a segment on travel industry (a well known offender).

Extracting consumer surplus is more aggressive than just differential marketing, it's predatory commerce, and depends upon asymmetric information to succeed.

It explains what's going on, from an econ point of view. One point, though, is that the supply/demand curves refer to different amounts of a homogeneous product, so what Orbitz is doing might be a tad different. If they're showing Mac users "the same" accommodation from the same lodging house at higher prices, that's the classic case. OTOH, if (and more likely) Orbitz is finding those who'll pay a lot more for a little better, the analysis of what they're doing gets a tad murky.

Turns out InformationWeek has written up a more nuanced piece (just found it): http://www.informationweek.com/news/internet/ebusiness/240002760

SAS has a function called CleanMACsignal(). They should have used SAS.

@Robert, not sure I'd call that piece exactly nuanced, given the lede: "Imagine walking into a retail outlet and asking how much a certain item costs and instead of an answer you get a question: How much do you have?". As pointed out above, Mac users and Windows users are offered the same price for the same property. 10 paragraphs down it does get into "dynamic pricing [vs] dynamic presentation", but too many commentators have promoted the "shakedown" fallacy.

BTW, a former Orbitz employee confirmed that OS doesn't affect search results, so it's actually the browser, not the fact that it's a Mac that counts.

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