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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

BOXEVER + SKIFT PRESENT THE HABITS OF TRAVEL BOOKERS: WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

By Skift Team + Boxever

In the digital age of limitless choices, consumer decision making has become even more difficult. Behavioral economics, the study of how and why we make choices, can teach travel marketers new ways to understand travel bookers and new tactics to guide them towards making purchasing decisions.

specialreport

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT www.boxever.com

TRAVEL BUYERS CAN BE UNPREDICTABLE & IRRATIONAL.

HOW YOU ENGAGE DOESN'T HAVE TO BE.

Boxever - predictive marketing & customer intelligence platform. Built specifically for travel.For better customer engagement, higher conversion, and more revenue.

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

ABOUT BOXEVER

Boxever’s predictive marketing platform helps airlines and online

travel agents (OTAs) deliver personalized, 1:1 marketing experiences

to their customers across all channels and at all stages of the cus-

tomer lifecycle. The company, founded in 2011 in Dublin, provides

a cloud-based customer intelligence and personalized marketing

platform specifically tailored for the needs of the travel industry. It

combines big data and predictive analytics into a tightly integrated

marketing solution that provides a 360-degree view of the customer.

With it travel companies can develop insights into each customer,

customer segments, products, and channels, and then take action on

those insights in the form of personalized communications, including

email, mobile, web, display, and more.

The solution enables travel retailers to deliver better customer ex-

periences in real time, improve conversions, and drive revenue. The

Boxever platform is a multi-tenant platform built in the cloud. Given

the SaaS architecture, it takes only weeks – not months or years as

with legacy “big data” solutions – for a customer to be up and running

and experiencing benefits.

Companies like Ryanair, Air New Zealand, TigerAir, Wideroe, and more

achieve higher conversion rates, increased revenue, and improved

loyalty using Boxever’s platform. Learn more at boxever.com or follow

us on Twitter @Boxever.

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

About Boxever 3

What is Behavioral Economics and Why Travel Brands Should Care 5

Consumers Are Irrational: How We Perceive Choice 7

What Cognitive Tactics Should Travel Brands be Using? 8

Contextual Pricing 8

Decoy Pricing 9

Anchor Pricing 10

Social Proof 10

Scarcity and FOMO 11

Further Reading 12

What Makes Customers Click? 13

About Skift 15

About Skift

Skift is a travel intelligence company

that offers news, data, and services

to professionals in travel and profes-

sional travelers, to help them make

smart decisions about travel.

Skift is the business of travel.

Visit skift.com for more.

The Habits of Travel Bookers is a quarterly series focused on the driving factors behind travel purchasing behavior.

Missed the first report? Check out Battling Shopping Cart Abandonment here.

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

WHAT IS BEHAVIORAL

ECONOMICS AND WHY

TRAVEL BRANDS SHOULD CARE

If you ask a travel marketer about the tactics they use to drive

online bookings, what do you expect to hear?

It’s likely you’ll get a rundown of the usual suspects—email

marketing, programmatic advertising, improved search function-

ality—all of which are perfectly acceptable answers, but fail to

address the root of the purchase journey: the consumer and

the decision to actually book with you.

We can’t predict customer behavior with absolute certainty, but

we can help form their decisions by understanding how choices

are made and designing solutions around them. This is where

behavioral economics, the study of how and why we make choices,

becomes an advantageous tool for marketers. Source: Ken Danieli / photo on Flickr

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

booking site may not have considered a flight at the silver-tiered

fare, but when stacked next to the more expensive, premium

option, the mid-level price becomes much more favorable.

With behavioral economics, travel brands have a huge opportunity

to drive revenue by applying minor cognitive techniques.

“I think there is huge opportunity to be able to merchandize more

effectively online based on behavioral economics,” says Dave

O’Flanagan, CEO of Boxever. “Presenting products in these

different ways, looking at the ways people pay for things—it has

a really, really dramatic effect on conversions.”

It starts with understanding consumer behavior.

Retailers have been applying these techniques for years, namely

with anchor pricing.

When Steve Jobs announced that the first generation iPad would

be priced at $999, critics scoffed. He must have been crazy to

think ordinary consumers would pay that high amount. Then, on

announcement day, he revealed that the pricing would actually

start at $499, with a slightly upgraded model available for $599.

Putting the $999 price tag into the minds of consumers was a stra-

tegic play to offer more reasonable tiers of pricing. All of a sudden

$599 seemed like a bargain.

Travel brands, whether they realize or not, are starting to employ

some of these cognitive tactics. Airlines and hotels push these

pricing tiers out to consumers all the time. A visitor browsing a

“Travel companies have a huge opportunity to help customers purchase from them by better understanding not only their profile and history but also understanding fundamentally how humans make choices.” — Dave O’Flanagan, CEO, Boxever

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

CONSUMERS ARE IRRATIONAL:

HOW WE PERCEIVE CHOICE

According to Dan Ariely, a renowned behavioral economist with 20+

years of studying human behavior, consumers are irrational by nature.

While we maintain that the decisions we make are well-thought and

logical, there are a number of underlying cognitive factors that deter-

mine how, why and when we make the choices we do. The good thing

is, consumer irrationality is often systematic and predictable.

In the digital age of limitless choices, consumer decision making

has become even more difficult. Two decades ago, choosing travel

was as simple as talking with your local expert, the travel agent.

Now, with no shortage of online booking options and relative sim-

plicity to browse in multi-tabs, there has never been more options

at the consumer’s fingertips. Not only is the consumer likely to

be paralyzed by vast amounts of choices, it’s become easier to

choose a competitor’s offer over your own.

“Choice is good, but only up until a point,” says Jerome Ribot,

chief design officer of digital agency Ribot and founder of

Cognitive Lode, a resource guide sharing the latest consumer psy-

chology research. “Your brain is like an energy bar. With each decision

you force consumers to make, they become increasingly fatigued and

therefore drop off. This is called Bandwidth Depletion.”

What’s more, we also have a stronger chance of regretting pur-

chases, as we can easily see when that deal we got yesterday

becomes less expensive today.

With this overexposure and choice exhaustion, one thing market-

ers can rely on is the power of default options. People are indeci-

sive and we like to be told what the best answer is. In an interview

with Google Think, Ariely calls this default setting the “path of

least resistance.” 1

“Particularly in the online world, where we can design the decision

environment with relatively tight control, we can influence what

decisions are easier and what decisions are tougher for people.”

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

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WHAT COGNITIVE TACTICS SHOULD

TRAVEL BRANDS BE USING?

There are a litany of behavioral economic principles that can be

applied to online travel booking. Here are a few easily implementable

strategies smart travel marketers should consider. For a deeper dive,

you can find more in the resource section at the end of this report.

CONTEXTUAL PRICING

When consumers are comparing offers, they judge in terms of relative

advantages. The purchasing journey does not begin and end with

glancing at the price tag. People won’t know what they want until it’s

put into context.

Most of the time, people are not sure what they should be spending

unless it’s matched up against similar offers. This is why you should

never present a customer with just one choice. Instead, present

them with three choices, with the middle option being the choice you

want to steer them toward. The idea here is that the middle option

becomes favorable purely based on environment. Source: J M / photo on Flickr

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Now imagine a third option: an all-expenses paid trip to Rome,

but coffee isn’t included. Obviously, this isn’t the option many

would choose. But, adding this inferior choice into the mix does

alter the equation. As soon as the option for Rome without coffee

is included, Paris with coffee becomes the most popular choice.

This choice not only becomes superior to Paris without coffee.

It becomes superior to Rome as well.

Adding a decoy alongside the real offer generates demand

on the real offer.

DECOY PRICING

Customers get three options: the product you want them to buy

at the price you want, a slightly less-good product at a lower price

(the “decoy”), and a similar product that’s good, but not what the

customer wants.

In a 2008 TED Talk, Ariely put it like this:2

Imagine you’re being given an all-inclusive trip. On one hand, you

can spend a week in Rome with all expenses paid. Or, you could

have an all-expenses trip to Paris. Instantly, your mind races to

compare cultural differences, which food you’d rather be eating,

which country has the better art scene. In this instance, the only

difference is a matter of preference.

Sources:

Kosala Bandara / photo on Flickr

Juanedc / photo on Flickr

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

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SOCIAL PROOF

People are happier to book something if they know their friends,

or a huge body of people have recommended or liked it. There’s

an aspect of authenticity in social proof that a direct-from-brand

message just can’t accomplish. That’s why Booking.com dedicates

an entire section to showcase recent bookings and Airbnb and

Uber show ratings from their guests and users.3

When asked in a Hubspot survey,4 81% of respondents said posts

from their friends directly influence their purchasing decisions.

ANCHOR PRICING

Once you set a price for your customers, they become tethered to

it. Humans like to focus on one piece of information when making

decisions and use the most convenient price available to drive

their decision about what something is really worth. The initial

price they see becomes the baseline in which they’ll compare

every other offer you present them.

“When it comes to luxury brands, removing choice tends to be powerful. Offering options as standard can reassert the brand’s credentials.” — Jerome Ribot, Chief Design Officer, Ribot

An example of social proof from Airbnb.

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

SCARCITY AND FOMO

Since people are more likely to respond to a sense of perceived

loss than a sense of perceived gain, creating a sense of scarcity

can be a key in driving incremental revenue.

During the booking path, inform consumers how many people are

looking at that same product right now, how many have booked

in the last hour or how many seats are left. All these things add

urgency to the booking process.

Scarcity, according to psychology and marketing professor Robert

Cialdini in his Six Principles of Influence,5 concurs that things ap-

pear more attractive when their availability is limited, or when we

stand to lose the opportunity to acquire favorable terms.

Take an example from the brick and mortar world: retail stores create

an environment where customers are ready to trample each other to

get the last product on the shelf. Online brands are smart to instill the

same urgency with digital customers, with the added value of making

the purchase from the comfort of their computer screen. Source: Glen McQuestion / photo on Flickr

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

FURTHER READING

Boxever - http://www.boxever.com

Cognitive Lode - http://coglode.com/

1. https://www.thinkwithgoogle.com/articles/understanding-irrational-customer-dan-ariely.html

2. http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_of_our_own_decisions?language=en

3. https://econsultancy.com/blog/64681-is-booking-com-the-most-persuasive-website-in-the-world/

4. http://blog.hubspot.com/marketing/why-people-buy-factors-influence-purchase-descision

5. http://www.mindtools.com/pages/article/six-principles-influence.htm

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

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WHAT MAKES CUSTOMERS CLICK?

We’re living in a great time where science is investigating, under-

standing, and explaining why we humans behave how we do - from

what makes us happy to why we love watching cat videos. To that

end, the study of behavioral economics helps us understand, in the

context of purchasing goods and services, how we perceive choice

and make decisions about price, value, and ultimately whether (and

why) we’ll part with our hard-earned cash.

All of this is good news for marketers. By understanding the science

behind what makes customers click, marketers can craft user jour-

neys, content, and offers that have the best possible opportunity to

convert into real dollars.

• By understanding that it’s easier for consumers to make a choice

when they’re presented with “like” things to compare (e.g., a trip to

Paris with or without breakfast, as opposed to a trip to Paris or a trip

to Rome), marketers can craft offers that make comparison – and

making a decision – easier.

Dave O’Flanagan

CEO of Boxever

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

• By understanding that price imprinting occurs only when the con-

sumer has made the decision to buy, marketers can look for buying

signals and present pricing at the right time to establish an anchor

by which all offers will be compared.

• By understanding that consumers will fight harder not to lose

something (money or features), marketers can highlight what’s NOT

included in a cheaper option to drive consumers to a higher priced,

more complete offering.

• By understanding that choosing between two highly desirable

choices is actually very difficult for humans to do, marketers can

make sure that they incorporate a less desirable option in the mix

of offerings to provoke a purchase.

• By understanding the power of social proof, marketers can weave

in nudges along the purchase path, that help the consumer feel

confident they’re making the right choice - and also that time is

of the essence to complete the purchase.

Incorporating these techniques can have real impact on the bottom

line. To the last example on social proof, Boxever customers can

employ social proof within the purchase path to let consumers

know that X people have purchased this flight or booked this hotel

in the last 4 hours, or only so many seats/rooms remain at this price.

Consumers feel reassured they’re making the right choice and

understand they need to act fast or miss out; travel retailers see a

3-5% uplift in conversion. With millions of visitors engaging in the

purchase path monthly, even a small uplift in conversion translates

into meaningful dollars.

The real power comes when you can act on these insights auto-

matically and at scale. Predictive marketing platforms help collect,

analyze, and react to consumer behavior in real time, enabling you to

accommodate for consumers’ irrationality, create a great customer

experience, and drive higher conversion.

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WHAT TRAVEL BRANDS CAN LEARN FROM BEHAVIORAL ECONOMICS

BOXEVER + SKIFT

ABOUT SKIFT

Skift is a business information company focused on travel intelligence

and offers news, data, and services to professionals in travel and pro-

fessional travelers, to help them make smart decisions about travel.

Founded in 2012 by media entrepreneur Rafat Ali, Skift is based in

New York City and backed by Lerer Ventures, Advancit Capital and

other marquee media-tech investors.

Visit skift.com for more.

Skift’s new content studio SkiftX helps brands such as Amadeus,

American Express, Egencia, Hilton, Peak Adventure Travel and oth-

ers create thought leadership in the global travel industry, through

trends reports, research, branded content, social media audits and

other content marketing initiatives, and helps distribute through

its industry marketing platform.

Contact us for more details:

Rafat Ali

Founder & CEO, Skift

ra@skift.com

212-564-5830

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