Early this year, UC Berkeley economist and Nobel laureate, Daniel McFadden published a paper entitled "The New Science of Pleasure" in which he noted that long-held economists' views on consumer behavior "as being driven by relentless pursuit of self-interest, with choices in the marketplace providing all the measurements needed to reveal their preferences and assess their well-being as being less than sufficient." McFadden suggested that "evidence from cognitive psychology,anthropology, evolutionary biology, and neurology" needed to be taken into account.
Among the many fascinating insights from the paper are that presenting consumers with a smorgasbord of choices may result in consumers' not selecting anything. Further social networks function as information sources; reciprocity where one must do unto others as one would be treated themselves is a part of consumer choice and altruism enters human behavior. A corollary to the first point is that consumers are susceptibility to bargains and is one of the cognitive devices consumers use
to simplify choice situations; and one that companies consciously use to position products and services.
The foregoing propensity of consumers to be guided by social networks and the bias towards bargains is perhaps at the root of some seemingly non-intuitive efforts by companies to skin their offerings to the bone and yet effect relative increases in prices. One such move is by the British coffee and hotel giant Whitbread PLC which hived off a significant part of its rooms while effectively raising the price per square foot of its offerings. The company recently announced "targeting customers on tight budgets with "hub" hotels
offering rooms about half the size of those at its Premier Inn
hotels and about 30 percent cheaper!
It is a tidy way to boost the bottom line while offering less to consumers with the premise being a combination of social network pressure and availability bias where consumers (it is hoped) will remember some of the nifty offerings like a fold-away desk and apps that enable a customer to set in advance TV channels and air-conditioning settings in the pint sized rooms.
Fortunately for those inclined to be more rational in their choices some hotels are choosing to cut costs through more conventional methods like combining departments and enabling customers via automated check-ins without cutting down on either size or breath of offerings. An ingenious if somewhat bizzare way of cutting costs without customers noticing is one being tried by GoAir of India which proposes to eliminate hiring of male flight attendants with the presumption that males are heavier than females with concomitantly lowered fuel costs enabling profitability. Obviously a non-sequitur in most countries with discrimination laws but probably a winner at least for the male clientele of GoAir.