Mark3220

– Marketing Research

Individual Assignment: Case Study on Regression Analysis1

Founded in August of 2008 and based in San Francisco, California, Airbnb is an online
marketplace that matches hosts, who are willing to rent out their home or rooms for profit,
and travelers, who are in need of short-term accommodations. It has now over 3,000,000
lodging listings in 65,000 cities and 191 countries.

One of the important problems that Airbnb faces is how to acquire new customers. As a
local Airbnb manager, you partner with Alaska Airlines to promote your firm. As a pilot
test, Airbnb will pay Alaska Airlines $9,000 for the ability to email a promotion to the next
3,000 passengers who book a flight from Seattle to Eugene, a city of the Pacific Northwest
located in the U.S. state of Oregon.

You design three email promotion campaigns. The first one is the standard campaign of a
simple welcome email from Airbnb with a 30 second video that shows some of Eugene’s
highlights. The second one is a promotion of US$25 off an Airbnb booking. The third one is
a promotion of free transportation from the airport to the Eugene destination booked on
Airbnb (taxi cost is US$25). The email promotions are randomly distributed to the first
3,000 passengers who booked a flight to Eugene on Alaska Airlines and did not already
have an Airbnb account based on an email-matching algorithm. Each promotion was mailed
to 1,000 passengers.

After the email campaign, Alaska Airlines shares the collected data.2 The variables in the
data include:
- Customer_ID: This is the unique id assigned to each customer.
- Choice: A binary outcome variable indicating whether the customer responded to
the email by booking a stay on Airbnb in Eugene. 1 = yes, 0 = no.
- Two dummy variables for email promotion type:

1
This case study is based on the case developed for First Principles of Marketing Strategy
(http://foster.uw.edu/centers/center-for-sales-and-marketing-strategy/first-principles-of-
marketing-strategy/). The author is grateful to Robert W. Palmatier for sharing the data.
2
The dataset is available on the course website Canvas.

1
 o Email_25: whether the customer receives the $25 discount off the booking. 1
= yes, 0 = no.
o Email_Taxi: whether the customer receives free taxi transportation. 1 = yes, 0
= no.
o Note that the customer receives the standard promotion of welcome email if
Email_25 and Email_Taxi are both zero.
- Three dummy variables for the email accounts that the customer is using:
o @gmail.com: 1 = yes, 0 = no.
o @yahoo.com: 1 = yes, 0 = no.
o .edu: 1 = yes, 0 = no.
o If all of the above variables are zero, then the customer is using other email
accounts.
- AlaskaFF: Alaska Airline account status: 1 = not an Alaska frequent flyer member, 2
= frequent flyer member, 3 = MVP frequent flyer member.
- Two dummy variables for the residential address of the customer:
o Add_Ore: whether the customer lives in Oregon but not Eugene. 1 = yes, 0 =
no.
o Add_Eug: whether the customer lives in Eugene. 1 = yes, 0 = no.
o If the above two variables are both zero, then the customer lives out of the
state.
- Age.
- Tickets: the number of tickets booked on the itinerary.
- RoundTrip: whether the customer is flying on the round trip, 1 = yes, 0 = no.


Please follow the instructions and conduct the regression analysis progressively. In
all of the analyses, you should treat the dependent variable Choice as a continuous
variable and apply linear regression taught in class.

1. Your first task is to find out what factors can influence customer decision of booking on
Airbnb. One approach is to run a series of simple linear regressions by testing the impact
of each explanatory variable on the dependent variable, Choice.
A. For each regression you run, report the coefficient estimate, t statistics, and p-value,
and conclude whether the explanatory variable has a statistically significant impact
on booking decision. You can use the following table to report these results.
B. For the factors that have statistically significant effect, how does one unit change of
the factor impact the likelihood of booking on Airbnb?

2
 Variable Name Coefficient (b) t statistic p-value Significant?
Variable 1
Variable 2
…
…


2. Given the results in the previous question, what would you recommend to Airbnb in
order to attract travelers to Eugene to book on Airbnb?

3. When analyzing the effect of frequent flier member on booking decision, the variable
AlaskaFF by default is treated as continuous in the regression.
A. Explain why this could be problematic.
B. Convert the variable into a set of dummy variables. Run a multiple linear regression
with the dummy variables: 1) First write down the regression model you run; 2)
Report the coefficient estimates, t statistics, and p-values.
C. Compare the results with the original results from the simple linear regression in
Question 1, and comment on the difference.

4. You suspect that there is a nonlinear relationship between age and booking decision, and
want to use multiple regression to test that. First, you create a new variable Age2.
A. Write down the regression model allowing you to test the nonlinear relationship.
B. Report the estimation result of the model and interpret the results.

5. Next, you also want to explore whether there is any interaction between age and
promotion type. You first create a new variable Email_25*Age by multiplying the two
variables.
A. Write down the regression model allowing you to test the interaction effect.
B. Report the estimation result of the model and interpret the results.

6. An alternative approach you can take is to run a multiple linear regression to test all
factors at the same time.
A. Write down the regression model.
B. Report the estimation result of the model using the above table format.
C. Which factors now become statistically significant?