Overselling
Encyclopedia
Overselling or Overbooking refers to the selling of a volatile good or service in excess of actual capacity. Overselling is a common practice in the travel and lodging industry. In telecommunications, sometimes the term oversubscription is preferred. The practice occurs as an intentional business strategy where sellers expect that some buyers will not consume all of the resources they are entitled to, or that some buyers will cancel, the practice of overselling ensures that 100% of available supply will be used resulting in the maximum return on investment
.
A telephone company
can experience problems when large numbers of callers attempt to use the system at the same time. This generally only happens in exceptional circumstances (such as a disaster or national emergency), but can result in some calls not going through at all. The United States has the Government Emergency Telecommunications Service
and Nationwide Wireless Priority Service
, and the United Kingdom has the Government Telephone Preference Scheme and ACCOLC
to allow official calls to go through reliably in emergencies.
Building for typical rather than peak demand is considerably less expensive.
industry, the term is used to describe a situation in which a company provides hosting plans that are unsustainable if every one of its customers uses the full extent of services advertised. The term is usually referred to the web space and bandwidth
transfer allowance. A hosting company may offer unlimited space and unlimited bandwidth, however, they put other restrictions in place such as CPU usage or inode limit. They may have onerous restrictions and one-sided contracts that lets them cancel the hosting of anybody that puts a strain on their system or fully uses their claimed allotments.
This practice usually incurs little ill-effect since most customers do not use any significant portion of their allocated share. If a customer has a small, low-traffic site serving static HTML
pages, few resources will be used. If a customer wishes to run a high-traffic, professional, or business website an oversold hosting account can be detrimental. In these cases, a shared hosting provider that does not oversell, a virtual private server
or dedicated server is a preferred option.
, rail, or shipping company can book more customers onto a vehicle than can actually be accommodated by an aircraft
, train
, or cruise ship
. This allows them to have a (nearly) full vehicle on most runs, even if some customers miss the trip or don't show up (tickets are often rebookable afterwards). Business travellers often cancel at the last minute, when their meetings take more time than planned. If everyone shows up, at least in the case of airlines, the overbooking will cause an oversale. Airlines may ask for volunteers to give away their seats, and/or refuse boarding to certain passengers, in exchange for a compensation that may include an additional free ticket or an upgrading in a later flight. They can do this and still make more money than if they booked only to the plane's capacity and had it take off with empty seats. Some airlines, like JetBlue Airways
, do not overbook as a policy that provides incentive and avoids customer disappointment. They have mostly tourists and their tickets are not refundable afterwards, so their passengers show up. A few airline frequent flyer programs actually allow a customer the privilege of flying an already overbooked flight; another customer will be asked to leave. Often, only economy class
is overbooked while higher classes are not, allowing the airline to upgrade some passengers to otherwise unused seats.
In the EU
, European Commission Regulation 261/2004
sets out compensation requirements for airlines that deny boarding to passengers due to overbooking. In 2007, Air Deccan
, the Indian low cost airline was found by Directorate General of Civil Aviation to overbook even when they weren't permitted to do so. They were known to cheat passengers by tagging the confirmed tickets as no show for compensating the additional seats. The airline pocketed all the money made by overbooking, minus airport tax, without offering a later flight for overbooked customers. The passengers that arrive last, either on time or even a minute late, become the target.
operations also practice overbooking and apply similar procedures to that of the airline industry in which an equal or greater service of that of which was booked must be provided to the customer, in the case of a hotel, most states have laws requiring accommodations to be provided at an alternate hotel referred to as a "walk" in hotel terminology. In the event that a hotel is overbooked resulting in no rooms remaining available, hotel management will often "walk" the customer to a neighboring hotel at an equal or complimentary rate depending on the situation, hotels often maintain partnerships or agreements with neighboring or competitor hotels to utilize as alternate arrangements for overbooked customers during walk situations.
Some hotel chains have specific company policies which determine which customers will be walked in order of priority, often customers who belong to the highest tier level of the hotel's loyalty program
or are considered a VIP guest will likely not be walked or would be the last to be walked in an extreme situation. Customers with third-party reservations that were not made directly with the hotel or first time customers with a discounted rate may be at a higher risk of being walked.
may be able to solve an overbooking problem by adding bandwidth—either by adding lines to an existing system, reconfiguring existing lines, upgrading existing lines to a higher speed line or greater number of time-multiplexed lines, or some other scheme to add bandwidth. In the hotel industry, while revenue management
teams commonly practice overbooking, they also work to ensure that hotels are not excessively overbooked resulting in negative brand perception and loss in profit.
Return on investment
Return on investment is one way of considering profits in relation to capital invested. Return on assets , return on net assets , return on capital and return on invested capital are similar measures with variations on how “investment” is defined.Marketing not only influences net profits but also...
.
Internet connectivity
ISPs regularly sell more bandwidth or connectivity than they have. One of the most successful dial-up providers America Online had an extremely high subscriber-to-line ratio of 20:1. When Internet bandwidth becomes overused, all customers' service tends to be degraded without necessarily failing completely.A telephone company
Telephone company
A telephone company is a service provider of telecommunications services such as telephony and data communications access. Many were at one time nationalized or state-regulated monopolies...
can experience problems when large numbers of callers attempt to use the system at the same time. This generally only happens in exceptional circumstances (such as a disaster or national emergency), but can result in some calls not going through at all. The United States has the Government Emergency Telecommunications Service
Government Emergency Telecommunications Service
The Government Emergency Telecommunications Service is a White House-directed emergency phone service provided by a division of the Department of Homeland Security...
and Nationwide Wireless Priority Service
Nationwide Wireless Priority Service
The Nationwide Wireless Priority Service is a system in the United States that allows high-priority emergency telephone calls to avoid congestion on wireless telephone networks. This complements the Government Emergency Telecommunications Service , which allows such calls to avoid congestion on...
, and the United Kingdom has the Government Telephone Preference Scheme and ACCOLC
ACCOLC
ACCOLC was a procedure in the United Kingdom for restricting mobile telephone usage in the event of emergencies...
to allow official calls to go through reliably in emergencies.
Building for typical rather than peak demand is considerably less expensive.
Web hosting
In the web hostingWeb hosting service
A web hosting service is a type of Internet hosting service that allows individuals and organizations to make their own website accessible via the World Wide Web. Web hosts are companies that provide space on a server they own or lease for use by their clients as well as providing Internet...
industry, the term is used to describe a situation in which a company provides hosting plans that are unsustainable if every one of its customers uses the full extent of services advertised. The term is usually referred to the web space and bandwidth
Bandwidth (computing)
In computer networking and computer science, bandwidth, network bandwidth, data bandwidth, or digital bandwidth is a measure of available or consumed data communication resources expressed in bits/second or multiples of it .Note that in textbooks on wireless communications, modem data transmission,...
transfer allowance. A hosting company may offer unlimited space and unlimited bandwidth, however, they put other restrictions in place such as CPU usage or inode limit. They may have onerous restrictions and one-sided contracts that lets them cancel the hosting of anybody that puts a strain on their system or fully uses their claimed allotments.
This practice usually incurs little ill-effect since most customers do not use any significant portion of their allocated share. If a customer has a small, low-traffic site serving static HTML
HTML
HyperText Markup Language is the predominant markup language for web pages. HTML elements are the basic building-blocks of webpages....
pages, few resources will be used. If a customer wishes to run a high-traffic, professional, or business website an oversold hosting account can be detrimental. In these cases, a shared hosting provider that does not oversell, a virtual private server
Virtual private server
Virtual private server is a term used by internet hosting services to refer to a virtual machine. The term is used for emphasizing that the virtual machine, although running in software on the same physical computer as other customers' virtual machines, is functionally equivalent to a separate...
or dedicated server is a preferred option.
Transportation
An airlineAirline
An airline provides air transport services for traveling passengers and freight. Airlines lease or own their aircraft with which to supply these services and may form partnerships or alliances with other airlines for mutual benefit...
, rail, or shipping company can book more customers onto a vehicle than can actually be accommodated by an aircraft
Aircraft
An aircraft is a vehicle that is able to fly by gaining support from the air, or, in general, the atmosphere of a planet. An aircraft counters the force of gravity by using either static lift or by using the dynamic lift of an airfoil, or in a few cases the downward thrust from jet engines.Although...
, train
Train
A train is a connected series of vehicles for rail transport that move along a track to transport cargo or passengers from one place to another place. The track usually consists of two rails, but might also be a monorail or maglev guideway.Propulsion for the train is provided by a separate...
, or cruise ship
Cruise ship
A cruise ship or cruise liner is a passenger ship used for pleasure voyages, where the voyage itself and the ship's amenities are part of the experience, as well as the different destinations along the way...
. This allows them to have a (nearly) full vehicle on most runs, even if some customers miss the trip or don't show up (tickets are often rebookable afterwards). Business travellers often cancel at the last minute, when their meetings take more time than planned. If everyone shows up, at least in the case of airlines, the overbooking will cause an oversale. Airlines may ask for volunteers to give away their seats, and/or refuse boarding to certain passengers, in exchange for a compensation that may include an additional free ticket or an upgrading in a later flight. They can do this and still make more money than if they booked only to the plane's capacity and had it take off with empty seats. Some airlines, like JetBlue Airways
JetBlue Airways
JetBlue Airways Corporation is an American low-cost airline. The company is headquartered in the Forest Hills neighborhood of the New York City borough of Queens. Its main base is John F. Kennedy International Airport, also in Queens....
, do not overbook as a policy that provides incentive and avoids customer disappointment. They have mostly tourists and their tickets are not refundable afterwards, so their passengers show up. A few airline frequent flyer programs actually allow a customer the privilege of flying an already overbooked flight; another customer will be asked to leave. Often, only economy class
Economy class
__FORCETOC__Economy class, also called coach class , steerage, or standard class, is the lowest class of seating in air travel, rail travel, and sometimes ferry or maritime travel....
is overbooked while higher classes are not, allowing the airline to upgrade some passengers to otherwise unused seats.
In the EU
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, European Commission Regulation 261/2004
European Commission Regulation 261/2004
Regulation 261/2004 of the European Parliament and of the European Council of 11 February 2004 established common rules on compensation and assistance to passengers in the event of*denied boarding,*cancellation* long delay of flights...
sets out compensation requirements for airlines that deny boarding to passengers due to overbooking. In 2007, Air Deccan
Air Deccan
Kingfisher Red, known formerly as Simplifly Deccan and prior to that as Air Deccan, is a low-cost brand run by Kingfisher Airlines. It is headquartered in Mumbai, India....
, the Indian low cost airline was found by Directorate General of Civil Aviation to overbook even when they weren't permitted to do so. They were known to cheat passengers by tagging the confirmed tickets as no show for compensating the additional seats. The airline pocketed all the money made by overbooking, minus airport tax, without offering a later flight for overbooked customers. The passengers that arrive last, either on time or even a minute late, become the target.
Hotels
During times of high demand, hotelHotel
A hotel is an establishment that provides paid lodging on a short-term basis. The provision of basic accommodation, in times past, consisting only of a room with a bed, a cupboard, a small table and a washstand has largely been replaced by rooms with modern facilities, including en-suite bathrooms...
operations also practice overbooking and apply similar procedures to that of the airline industry in which an equal or greater service of that of which was booked must be provided to the customer, in the case of a hotel, most states have laws requiring accommodations to be provided at an alternate hotel referred to as a "walk" in hotel terminology. In the event that a hotel is overbooked resulting in no rooms remaining available, hotel management will often "walk" the customer to a neighboring hotel at an equal or complimentary rate depending on the situation, hotels often maintain partnerships or agreements with neighboring or competitor hotels to utilize as alternate arrangements for overbooked customers during walk situations.
Some hotel chains have specific company policies which determine which customers will be walked in order of priority, often customers who belong to the highest tier level of the hotel's loyalty program
Loyalty program
Loyalty programs are structured marketing efforts that reward, and therefore encourage, loyal buying behavior — behavior which is potentially beneficial to the firm....
or are considered a VIP guest will likely not be walked or would be the last to be walked in an extreme situation. Customers with third-party reservations that were not made directly with the hotel or first time customers with a discounted rate may be at a higher risk of being walked.
Solutions
In the transportation arena a company can add forecast to additional air flights on future routes, add more cars or consists to a train, move to a larger ship or add ships or containers to a cargo transport. In the telecommunications industry a common carrierCommon carrier
A common carrier in common-law countries is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport...
may be able to solve an overbooking problem by adding bandwidth—either by adding lines to an existing system, reconfiguring existing lines, upgrading existing lines to a higher speed line or greater number of time-multiplexed lines, or some other scheme to add bandwidth. In the hotel industry, while revenue management
Revenue management
Revenue Management is the application of disciplined analytics that predict consumer behavior at the micro-market level and optimize product availability and price to maximize revenue growth. The primary aim of Revenue Management is selling the right product to the right customer at the right time...
teams commonly practice overbooking, they also work to ensure that hotels are not excessively overbooked resulting in negative brand perception and loss in profit.