Frustration-Based Promotions: Field Experiments in Ride-Sharing

Abstract

The service industry has become increasingly competitive. One of the main drivers for increasing profits and market share is service quality. When consumers encounter a bad experience, or a frustration, they may be tempted to stop using the service. In collaboration with the ride-sharing platform 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. We design and run three field experiments to investigate how different types of compensation affect the engagement of riders who experienced a frustration. We find 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 more effective than sending the same offer to nonfrustrated riders, and (iv) has an impact moderated by past usage frequency. We also observe that the best strategy is to send credit for future usage (as opposed to waiving the charge or sending an apologetic message). This paper was accepted by Vishal Gaur, operations management.