TapRun Consulting

Pricing Matters. Even If Nothing Is Sold

by Adam Juda on Thursday, July 23, 2015

How does six hundred dollars sound? Pretty good, huh? That's very convenient because you're about to receive it.

That's what I was thinking as I waited in the airport. I was returning home from a presentation in Boston, waiting to catch the second leg of my flight. As I lost myself in a book, the staff at the check-in counter demanded my attention. They announced that airplane had been overbooked and volunteers were needed to take a later flight. I chuckled to myself. Good luck finding anyone willing to stand around because of your business mistake. But there was more. The airline was willing to throw in a $600 voucher to anyone who volunteered.

I perked up. Of course I'd help out. It was my civic duty! Having left our names with the staff, a handful of volunteers proceeded to discuss the best use of our vouchers. Should we fly off to Vegas or Albuquerque? Would it be better to enjoy the sights of the Pacific Northwest or should we stay on the East Coast? Our minds created elaborate visions of our future travels as the attendants directed other passengers to the plane.

Then, as I dreamed about my next trip (I had decided to see the Seattle Space Needle), the attendants demanded my attention. "We don't need you anymore." The other passengers had finished boarding, and it turned out that the flight had not been overbooked after all.

The good news was that I could board my flight. The bad news? The voucher that I had been promised would no longer appear. My bargain with the staff had been nullified by fiat. Of course, since everyone had boarded before me, I was told that I'd have to check my bags - the overhead compartments were all full.

Of course, I'm not so petty as to name the airline (Delta). Though no money exchanged hands, I felt significantly worse for my good faith efforts. Humans have long been known to be very loss averse. Their hatred of "losing" anything far outweighs the joy that comes from gaining an item of equivalent value. In this case, not only had I "lost" the six hundred dollar voucher that I had been promised, but I also "lost" the ability to stow my luggage above my seat. Now I would have to waste time at the baggage carousel.

I'm not exactly a fan of the airline industry. I make fun of them for their alleged crimes, poor treatment of their customers and their chronic business failures. Due to a combination of competition (and alleged illegal business collusions) the airline industry is insulated from the effects of its many pricing mistakes. Most businesses are not so fortunate. They need to understand that a misunderstanding of behavioral pricing can be quite detrimental to their long-term financial prospects.

If you need help with your business, why not contact me for a consultation? Oh, and don't forget about my fantastic software pricing book!