Monday, December 6, 2010

Price rises and salary reviews - how train tickets can show us how

I recently moved from an annual train ticket to a stored value, charge-by-trip system.  Where my previous experience had been that the annual cost was taken from my salary each fortnight (thanks to a system my employer provides), I now have to top up my card and see what value remains after each journey is completed.  The cost of course is the same as it's always been (and in fact a tiny bit less).  So what's the difference? After each trip I now have the personal cost brought top of mind.  If the trip has been bad, I'm resentful. If it's been a 'good' trip, I'm resentful because who likes paying for smelling unreliable service? 

The concept at play here is "adaptation", explored in Dan Ariely's Upside of Irrationality. We become desensitized to change - our emotions level out as the positive and negative perceptions of the change fade away.  Think about how excited you were when you bought that new TV, new car, new dress. The elation fades away as you adapt to the change.  Ariely describes this as the "hedonic treadmill" where we underestimate how short lived happiness through consumption actually is, and why 'keeping up with the Joneses' will only ever disappoint.

One of the lessons here is that when it comes to the annual pay rise, we'd be better off getting the increases in instalments. Why? So we can enjoy them more. Quarterly raises would mean you are reminded four times of your increasing worth to your workplace rather than just once.   (It would also benefit the business' bottom line just quietly....)

The converse is true and is why my train ticket has become very annoying.  Instead of me adapting to the annual cost and the pain receding to my memory, I am being interrupted every time I travel - I am not being allowed to adapt. 

The lessons for marketers? If you are increasing your prices, give serious consideration to larger rises less often - limit the number of times you remind them of what you are charging so that you give your customers time to adapt.  Think like an annual train ticket.

If you are rewarding your customers (Myer does this well with it's reward card), try doing so in instalments so the positive impact is felt more frequently. Think like a reward-per-trip ticket.

And if you are the new Victorian government, add this blog to the list of Myki ticket feedback!

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