Would you describe yourself as a risk taker? Most people, I think, are pretty clear in their minds whether they are or not on the bigger questions but on the smaller day-to-day decisions, where all manner of minor risks are presented, I’m not sure we think of them in this way. In many instances our decisions default to instinct.
Quite a lot of research has been carried out on the subject of decision making, one idea in particular is the basis of many of the sales tactics used by companies to get us to make a decision where risk is involved.
I’m talking about Prospect Theory. In short, it describes how we make decisions based on different probabilities that involves risk. It’s a theory that also points to the idea that the attitude to risk is different for the prospect of a loss than to a gain and that we focus on these risks and not the final outcome when making the decision.
Why am I telling you this? Well, recently I booked a flight on EasyJet. As I looked at options, worried about availability and considered prices, it struck me all of these concerns played nicely into prospect theory, which EasyJet were making full use of.
From this theory EasyJet know that I would be more upset by having to pay more – say £10 per seat because I waited too long than if by waiting I found a cheaper seat at the same amount saved, as in £10 cheaper.
Here is how I think EasyJet want me to think.
- I have a 100% chance of buying the available seat on offer at the price shown if I act now
- I have an unknown % risk of not getting that offer
- I have an unknown % risk of not getting a flight at all
- I assume the cost of a seat only rises as time passes and as the departure date gets closer, so by not acting now I am bound to pay more.
Now, importantly, in terms of risk I do not know what it is as I’ve no idea how many seats have been sold and therefore how popular the flight is.
Knowing all this, EasyJet make sure the ‘mood music’ is loudly directed at making me feel I must hurry to purchase or lose out.
So, I have done this merry dance many times and for all my gut feelings about what was going on, I have defaulted to the standard purchase position…brace, brace…BUY!
Ultimately, to find out anything of value you have to do some research and on this occasion I thought I’d scratch this itch and see if I could find out what was actually happening.
These airlines act more like a train service with each destination having multiple daily flights and, much like The Trainline, EasyJet give a grid choice for the date you choose as well as options on the days either side. This is presented in a grid format with the price boldly positioned in the middle. If you hover your curser over an individual flight more information can appear like ‘Hurry up only 4 seats left’ or specials on child prices etc.
I decided to go about planning a fictitious holiday to Malaga from Gatwick for two adults and two children leaving on June 8th. I started tracking the data on May 17, three weeks in advance of my dreamed-up departure date. (A bit of spring sun I thought).
There are four flights a day to this destination and so the grid showed the main date and one either side, so presenting me with 12 options daily.
Every day I checked the grid and recorded everything on a spreadsheet. On one day I checked it 5 times throughout the day.
Now this is unscientific research, but I was only really interested to know if the EasyJet tactics were, as I suspected, trying to make me act because of a fear of losing out or paying more or were the pattern of offers and ‘act now’ flashes actually linked to the reality of supply and demand where, as planes filled and availability dropped, so prices naturally rose.
So what did I find out:
- Of the 12 flights, 10 were cheaper at some point over the three weeks than their original price.
- The biggest drop at some point in the period compared to the original price was £50.50 (around £200 saving for 4).
- Two flights were cheaper at the end of the period than the starting price.
- The biggest price difference comparing start and end price
- £86.75 more expensive
- £25.25 cheaper
- Seven out of the 12 sold out.
Use of ‘Hurry, only x (number of) seats left’.
This tactic is extensively used. On any given day if you hovered over each flight, different ones would appear with a dramatic flash encouraging me to ‘Hurry’ saying either only a certain, small number of seats were available at this price or, even more starkly dramatic…Only a few seats left.
However, the pattern of use seemed more to do with making seats look scarce and keeping me slightly off-guard. This you can only see when you look at all the flight prices which shows the ones that actually sold out. Some flights, on reflection, were plainly selling out so the ‘Hurry’ call was based on reality, whilst others seemed to randomly throw in a ‘Hurry’ because the later evidence clearly showed there were seats and prices even dropped. Whatever the algorithm is, there is no doubt that primarily its purpose is to play on the fear of losing out (the risk) and prompt action…as in: flights to the destination are popular, I’d better act now.
When looking at the data what I saw were plenty of these anomalies which suggests to me, that ‘Hurry’ flashes were not based wholly on availability but on making me feel uncertain and insecure about upping the risk by waiting. This evidence suggests I would have done better on some flights by ignoring these flashes.
- On one day a flight had only 4 seats left at £90.68 but the next day there was no limit for the price of £75.68
- Another one had only 6 left at £197.68, but as many as you want 5 days later at £147.18 and 4 left at £152.68 a week later.
- In one pattern there were 6 left at £126.68, then unlimited the next day at £121.68 and 5 left at £126.68 the next day and back to £121.68 (no limit) the next. And if you waited three more days the price dropped to £111.68 – no limit.
- Another had only 5 left at £69.68 but no limit the next day at £58.68.
- One flight over a five-day period before it sold out, had a different price every day, but not one that was always going up. On day one it had 5 seats left at £58.68, day three it was £63.68, day four £75.18 and day five back to £63.68. With no limit on any of these dates.
To me this data shows how they use prospect theory to help get sales…in bullet point form I’d suggest in summary.
EasyJet and Prospect Theory
- A prospect is a gamble
- Therefore, it’s about people making decisions on flights under uncertainty.
- We value losses differently to gains. It turns people who are much more worried about small losses than the equivalent gain
- There is a value function – how we value the flight
- And a weighting function (how we deal with the probability)
- Lastly, we need a reference point – let’s say the happy feeling once the flight is book
Prospect theory really points to some human failings which are exploitable. And much like the financial sector, EasyJet are just playing on these fears. They frame the flash with the words ‘Hurry, at this price’ (value) and then put a number left to highlight the probability you might lose out (weighting). The reference point is our own one for wanting the piece of mind that you have booked that flight linked to the fear of going back to the grid and finding your flight has increased in price.
So, do I feel any braver with my flight booking tactics? Well, no if I’m honest. At the heart of all of this is my original point that the pressure is put on the booker to act quickly or lose out. Add to this prospect theory, I would rather lock in a price now even if future checking shows we could have got it cheaper.
There is one other important stress to add – peer/spouse pressure. It’s one thing to nonchalantly wave off the fear factor and say, “this is just a tactic to make me act, don’t worry, I know what I’m doing, just hold on and we’ll get them cheaper.” Tis, a brave soul that actually does this, and risks having to admit on this occasion the flight had doubled in price or sold out. EasyJet know that for most, the ingrained instinct to act now and secure the deal is what drives most people and that all they have to do is keep reminding people of the risk.
If anyone is interested in seeing the data spreadsheet, email me at email@example.com