Scott Shane, A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University, has put forward a radical idea to help the airlines beat falling passenger numbers and higher costs.
He is recommending that airlines hire behavioural economists to understand how different framing of a problem can solve bigger issues. For example: How about the airlines paying passengers for NOT checking bag's in.
The principle works like this:
In a 'normal' situation, an average human considers benefits and losses on different scales. Thus finding $50 is proportionately more enjoyable than the pain of losing that $50, even though it's the same $50.
Knowing this he is recommending airlines change their pricing structures to take advantage of it.
So let's change the paradigm and take a behavioural economists approach to this:
From the airline's point of view the seat earned them the $150 they originally wanted for it, but they also made an additional $18 for the aisle seat, the food & drink and the one checked bag. Because this covers their costs they don't mind paying back the money to the customer and, on top of that, the customer feels better spending $168 for their $150 dollar ticket, than $150 for the ticket with 'surcharges' on top.
Refunds always beat surcharges, regardless of the overall cost at the end of the day.
I think this is a great idea. Richard Branson - are you listening....?
He is recommending that airlines hire behavioural economists to understand how different framing of a problem can solve bigger issues. For example: How about the airlines paying passengers for NOT checking bag's in.
The principle works like this:
In a 'normal' situation, an average human considers benefits and losses on different scales. Thus finding $50 is proportionately more enjoyable than the pain of losing that $50, even though it's the same $50.
Knowing this he is recommending airlines change their pricing structures to take advantage of it.
At the moment you may buy an airline ticket for $150. Then when you get to the airport you check in 2 bags at $5 each. You ask for an aisle seat which costs another $5. During the flight you buy your $5 sandwich and $3 drink and spend another $5 on the headset to listen to the movie. In total your $150 flight has cost you $178.
So let's change the paradigm and take a behavioural economists approach to this:
You buy your ticket for $178. When you get to the airport you decide to check in only one bag. The airline refunds you $5 for the other bag not checked in. You still opt for the aisle seat but decide against watching the movie (which you've seen before). You get $5 back for not hiring the headset. You still have the food and the drink. At the end of the day your airline ticket cost you ($178 - $5 - $5 = $168). Overall you've spent more than the original $150 that ticket would have cost you, but you've spent less than the $178 you paid for the ticket. And, more importantly, you got $10 back off the airline.
From the airline's point of view the seat earned them the $150 they originally wanted for it, but they also made an additional $18 for the aisle seat, the food & drink and the one checked bag. Because this covers their costs they don't mind paying back the money to the customer and, on top of that, the customer feels better spending $168 for their $150 dollar ticket, than $150 for the ticket with 'surcharges' on top.
Refunds always beat surcharges, regardless of the overall cost at the end of the day.
I think this is a great idea. Richard Branson - are you listening....?
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