We all know about the problems that the airlines are having with rising costs and their efforts to raise prices on everything – bags, snacks, good seats, and so on. Their problems are real and I wouldn’t be the one responsible for figuring out a way to cover costs at airlines today.
But I can’t help but wonder if the airlines should hire a couple of behavioral economists as consultants. Here’s why.
One of the major tenets of behavioral economics is that people don’t view gains and losses the same way because they are averse to losses. The classic example is that people are not equally happy about finding a $20 bill on the ground as they are sad about losing a $20 bill, even though both are $20.
This brings me to the airlines. The airlines have framed all of their efforts to raise revenues as losses to the customers. You have to pay an extra fee to check a bag, get a snack or drink on the plane, get a headset, get an exit row seat, and so on.
Behavioral economics would tell you that a better approach would be to charge higher ticket prices and then provide ways for customers to gain money by engaging in the behavior that the airlines want. For example, you pay $350 to fly from Cleveland to New York, but you get $20 if you carry on your bag, $7 if you refuse the peanuts and pop; $2 if you refuse the headset, and $15 for taking the middle seat.
By giving people money for taking the actions that they want (even though the customer is only getting back his or her own money paid in the form of higher ticket prices), the airlines would frame their efforts to raise revenues as gains to customers. Almost all of the research studies show that framing the same efforts as gains instead of as losses make people respond more positively. So the airlines should get the same outcome with less negative customer reaction by taking this approach.
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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.