More Psychology than Economics

Years ago I worked as a banqueting steward in Manchester’s Victoria & Albert Hotel, which at the time was a Meridian (it’s now a Marriott).  A large part of my job was to wait the tables in the massive function room, which people would hire for weddings, conferences, balls, etc.  We didn’t do a lot of silver service thankfully – most of it was plated, meaning the chef and his team would prepare a hundred or more dishes on plates and half a dozen of us stewards would distribute them among the tables.  I never learned to carry more than four plates at once, but some people could carry six or eight.

When times were quiet and there weren’t many functions on I used to take the occasional shift in the restaurant behind the bar.  I can’t give you exact figures because I can’t remember them and inflation will apply, but the place was extortionately expensive.  In fact, everything in that hotel was one giant rip-off, and I expect – as I learned recently from a discussion on wi-fi prices in hotels over at Mr Worstall’s – the higher-end hotels rip people off because they assume it will all be submitted as a business expense.

Anyway, between the banquets and the restaurants I noticed there were a lot of complaints and food was being sent back, or we’d be collecting plates with uneaten food.  Chefs being chefs, they generally dismissed all this as the customers being heathens who simply wouldn’t know vegetables are, apparently, best served near-raw.  I was young then and still had a long way to go towards finding my place in the world, but nevertheless I was able to see what the problem was: it wasn’t that the food was bad, it was that we were charging too much for it.

We were charging a lot of money for the supposed privilege of eating in our fine establishment and enjoying food prepared by our top chef, and so customers’ expectations were sky-high from the beginning.  If the slightest thing was wrong they’d complain, and rightly so.  But if the same thing had been served up at a lower cost they’d have eaten it gladly.  I learned during my time in that hotel that when customers complain it is not so much about quality or price but of unmet expectations.

I experienced this myself when I checked into the Pullman hotel in Cologne some years back and found they charged for parking and wifi on top of the 250 Euros per night room rate (I was paying in Accor club points).  Now I know they are just ripping off businessmen but at the time I didn’t and I was incensed.  I could understand the Ibis in Heidelberg charging for wifi and parking because their room rate was about 70 Euro per night, but I thought the Pullman in Cologne was ripping me off.  I complained and to their credit they waived the charges in pretty short order.

This weekend I am going to Lille, just for the hell of it.  I have found a hotel which charges 200 Euros per night, and an additional 20 Euros per night for parking.  Reading the reviews, I see that a few people are quite pissed off by this extra charge.  Sure it reflects the market rate for parking in Lille city centre, but as a guest of a 200 Euro per night four star hotel, having to pay extra for parking grates a bit.  Again, it’s not so much the price but the feeling that you’re being fleeced; it makes you feel that you’re dealing with an outfit more akin to Ryanair than a luxury hotel.  I suppose these outfits must run the numbers and find the additional revenue compensates for the complaints and negative comments, but often I wonder how closely the management pay attention to these things.

It appears that British Airways does.  Via the ever-traveling Michael Jennings who posted this link on his Facebook page:

In the annual Investor Presentation to the City back in November, British Airways revealed plans to re-introduce Club Europe on UK domestic flights.

This is almost certainly linked to the introduction of ‘buy on board’ catering from next Wednesday.  BA’s biggest nightmare is that someone paying £7,670 for a fully flexible Club World ticket from Edinburgh to Tokyo decides to switch to a Middle East carrier or KLM because they are insulted at paying £2.30 for a cup of coffee on the connection.

And that’s exactly what would happen: if you’ve shelled out all that money and then somebody asks you to pay £2.30 for a cup of coffee between Edinburgh and London, you’d never fly with them again.  It’s not about the money, but the principle: people don’t mind spending money, but they don’t like being ripped off.  It’s more psychology than economics, in fact.

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18 thoughts on “More Psychology than Economics

  1. Absolutely spot on.
    In Spain, it is customary to tip a small amount if you are satisfied with the meal or service. In tourist traps like Mallorca the restaurants slap up to 15% service charge on the bill. This lead to an interesting conversation with the restaurant owner one time I hosted an international management meeting at the end of the tourist season and the bill was quite considerable.

  2. I can’t disagree with you but then it is a long time since I stayed in any sort of fancy hotel, so my view is much narrowed by poverty (relatively speaking).

    But, there is a but. My experience is that many people regard free or at no charge as worthless. Sure paying extra for coffee having paid plenty for a seat or even parking in a place that has built-in parking already is a rip off, but sometimes people think something that has no cost to them has no value.

    Old observation: a shop owner bought a load of chairs from a business going out of, er, business. He tried to sell them for a fiver each but no one bought. They were just cheap tat, right? He realised that value is relative to expectations, so he raised the price to twenty each and people couldn’t buy the chairs fast enough. They were amazingly no longer cheap tat in their mind.

  3. Yes it works that way at both ends, I haven’t taken BA as a serious preferred airline for most of my flying life. Its the same in first class as well, the caviar must be brought as soon as I have finished my shower, or else.

    A great selling technique is to have two prices for essentially the same product as there are always high end buyers. The high end pay for better packaging or other additional feature that the poorer folk cant afford. Everybody gets a better value experience the poor guy is happy that they are getting the same outcome for cheap and the higher class buyer feels better about being a few pegs higher than the poor guy.

  4. I’ve noticed that most posh hotels charge for everything that cheaper ones throw in for free. Breakfast, wifi, parking… and yes the food is frequently less than stellar. Its even worse in top end resorts where they jam on a resort charge as well for facilities like tennis courts of the golf course that you then have to pay for if you want to use them.

    I will say that I’ve found the Relais et Chateaux chain is generally an exception to that rule. The wife and I have stayed in a number of them in France and a couple in other bits of Europe. Food was pretty good, in fact IIRC a couple of the places we stayed in had a Michelin star, and they tended to give you an all inclusive price for everything except for booze.

  5. The Americans have an excellent phrase for this, “nickel and dime” which has no uk english equivalent.

  6. “And that’s exactly what would happen: if you’ve shelled out all that money and then somebody asks you to pay £2.30 for a cup of coffee between Edinburgh and London, you’d never fly with them again. It’s not about the money, but the principle: people don’t mind spending money, but they don’t like being ripped off. It’s more psychology than economics, in fact.”

    German wings the airline has an interesting solution. If you’ve bought the cheapest ticket then you must pay for your coffee. But they have a list of the people who paid more and they get the coffee free…..

  7. German wings the airline has an interesting solution. If you’ve bought the cheapest ticket then you must pay for your coffee. But they have a list of the people who paid more and they get the coffee free

    Somebody should have ensured the pilots got theirs…

  8. The very worst customers to ever take on rafting trips were those who had got the trip for free. As they had no skin in the game to enjoy themselves they thus complained incessantly.

  9. Have you ever tried to get people to come to an event like when some industry figure is in town and is going to do a breakfast speaking engagement?

    The difference between booking and actual attendance numbers if you make it free versus a nominal cost, like $15, is remarkable.

    People don’t value anything they get for free.

  10. I learned during my time in that hotel that when customers complain it is not so much about quality or price but of unmet expectations.

    Yes.

    Lille – have driven few there a few times. Never stopped though, was heading for Melun and friends.

  11. “People don’t value anything they get for free.”

    Its like anything you can get on t’internet and this blog for that matter, it’s worth is what you paid for it.

  12. The book Persuasion covers a lot of this type of human behavior. Everyone should read it.

  13. @Tim N
    “Years ago I worked as a banqueting steward … We didn’t do a lot of silver service thankfully – most of it was plated, meaning the chef and his team would prepare a hundred or more dishes on plates and half a dozen of us stewards would distribute them among the tables.”

    Years ago I sometimes worked as a plate deliverer. I wasn’t a waiter as I couldn’t master silver service. I was a good barman.

    FTFY 🙂

    PS: describes me too 😉

    @Watcher on January 13, 2017 at 10:10 am said:
    “Old observation: a shop owner bought a load of chairs from a business going out of, er, business. He tried to sell them for a fiver each but no one bought. They were just cheap tat, right? He realised that value is relative to expectations, so he raised the price to twenty each and people couldn’t buy the chairs fast enough. They were amazingly no longer cheap tat in their mind.”

    When I’m selling anything (eg car) I price high. When viewed and “faults” found negotiate.

    Price can be reduced, but not increased – unless >1 viewing at same time and they bid up price (only happened twice).

  14. The book “Persuasion” covers a lot of this type of human behavior.

    We are not talking the one by Jane Austen, presumably, but that one also includes very astute observations about human motivations and behaviour.

    Price discrimination is a fascinating thing. “Outlet malls” are a way this is done for many branded products, particularly clothing. They are generally not about selling factory seconds or last season’s products or anything like that -companies that are good at logistics and inventory management tend not to have significant numbers of unsold items in the first place. You have customers who are willing to pay full price, and for these you have posh outlets in city centres. There are other customers who want your brand, but are not willing to pay full price for it, and you want to sell to these but still collect full price from the first class of customer. So you build a mall some distance out of town in nondescript or unattractive locations. The journey and location will hopefully be enough to deter the first class of customer from making the journey, but not the second class. (Although the location may be unattractive, the mall itself will be nice. Once people have come there, you want them to stay as long as possible and spend as much money as possible).

    My favourite ever example of one of these was found in the middle of an unpopulated area a few miles from the opposite side of the Tagus estuary from Lisbon. To get to it, you had to cross the (tolled) Vasco de Gama bridge. When I looked up information on the Mall later, I discovered that it belonged to Macquarie Bank, who also happened at the time to own the Vasco de Gama bridge. Which was cute.

    The difference between booking and actual attendance numbers if you make it free versus a nominal cost, like $15, is remarkable.

    This is why everyone but the presenters and the the nominees are required to pay for their tickets for the Academy Awards, regardless of how rich or famous they are. If they have paid for them, they will generally show up, and the one thing that the organisers of the event want to avoid at all costs is for there to be empty seats visible on TV. (They also employ seat stand-ins. If a member of the audience gets up to go to the toilet, an unemployed actor in a tuxedo will occupy his seat until he returns).

  15. Also, the one class of accommodation where you will get free and reliable WiFi without fail is backpackers hostels. The clientele is youngish, tech savvy, extremely price sensitive (or possibly really cheap – the backpacker mindset isn’t always an attractive one), and there is lots of competition for their business. Free tea and coffee is fairly standard, too, although not quite as ubiquitous as free WiFi.

  16. Michael, I was talking about the Robert Cialdini book, but Jane Austin is not a bad place to look either.

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