12thman Posted December 17, 2019 Report Share Posted December 17, 2019 Interesting article about how Royal gets us to spend more on our cruise. businessinsider.com How Royal Caribbean gets customers to spend more money Mark Matousek 5-6 minutes Royal Caribbean International emphasizes add-ons during the booking process to increase revenue. They make onboard expenses seem smaller at the time of purchase and change the way customers think about their spending habits once they're on the cruise. The phenomenon is explained by a behavioral-economics theory that businesses use all the time. Sign up for Business Insider's transportation newsletter, Shifting Gears, to get more stories like this in your inbox. Visit Business Insider's homepage for more stories. How much should a TV cost? It seems like a simple question, but it can be difficult to answer. Of course, it depends on factors like size and quality — but once you've determined those, it's still hard to figure out what the price should be without referring to other TVs you seen, owned, or read about in the past. Even then, a $700, 55-inch Samsung TV might seem more or less expensive based on context. If you're spending $3,000 on speakers, furniture, and video game consoles to accompany the TV, paying $700 for the screen itself might seem like a bargain. But if you're browsing at Best Buy and see the $700 TV next to a $500 TV, the $700 one may seem more expensive. This tendency contradicts a classical economic theory that says the values we assign to goods and services don't change in different situations. So if you value a TV with the capabilities of a 55-inch Samsung model at $700, you'd be willing to pay up to $700 for it in any context. We think about prices in reference to other prices But behavioral economics, a hybrid discipline that fuses economics and psychology, suggests otherwise. In 1979, the psychologists Daniel Kahneman and Amos Tversky released an influential paper called "Prospect Theory: An Analysis of Decision Under Risk" that introduced the idea of a reference point as a benchmark to evaluate investments. Reference points can arise from several factors — for example, you might compare a TV against other TVs in a store, the last TV you bought, and the total price of the goods and services you plan to purchase in addition to the TV. Read more: A former Royal Caribbean employee reveals the one question you should always ask cruise ship workers Michael Bayley, the CEO of Royal Caribbean International, uses reference points to increase how much money customers spend on the company's cruises by emphasizing pre-trip purchases. The idea is that spending $100 on a drink package, for example, will seem less expensive if you by it alongside a $1,500 cruise ticket. If your reference point for what that cruise should cost is $1,800, then buying the drink package to make your total pre-cruise expense $1,600 still feels like a deal. And once you're on the cruise, you're less likely to consider the cost of the drink package when buying other items, meaning you're likely to spend more overall. "What we found is if you spend $100 before you sail, that's spent and gone — you don't even put it in your budget for when you're on vacation," Bayley told Business Insider during a 2018 interview. "So every pre-cruise revenue dollar that we generate will often generate 50% more onboard revenue for that customer." The strategy worked, and it was one of the reasons Royal Caribbean doubled earnings in the three years after Bayley became CEO at the end of 2014. Businesses influence how we think about prices Royal Caribbean is far from the only business that uses reference points to influence your spending behavior. Walk into any store, and they're everywhere. "These are used on price tags, these are used in advertising, this is used inside retail stores on signage — all of which are ways to try and get you to anchor on a particular price, so it is against that price that you would then evaluate the current offering," Priya Raghubir, a marketing professor at New York University's Stern School of Business, told Business Insider. When a bookstore runs a "buy two, get one free" promotion, it's encouraging you to use the price of three books as your reference point for buying two. So even if the total cost of the books is more than you would have been willing to pay if each had been discounted separately, you still feel as if you're coming out on top. And when a clothing store advertises a $20 discounted shirt by urging you to compare it to another one that costs $40, it wants you to use $40 as the reference point for that particular shirt, even if no other store would sell it at that price. Raghubir says that being aware of your tendency to use reference points still won't make you immune to pricing strategies designed to increase your spending, not even for the economists and psychologists who study them. "These biases are really strong," Raghubir said. "Even if you are aware, you are unable to control their influence." Lovetocruise2002, CruisinUpinLife and SpeedNoodles 3 Quote Link to comment Share on other sites More sharing options...
monctonguy Posted December 17, 2019 Report Share Posted December 17, 2019 Interesting and smart on their part! Quote Link to comment Share on other sites More sharing options...
coneyraven Posted December 17, 2019 Report Share Posted December 17, 2019 Wal-Mart doe the same thing ..... they also use the psychology of merchandising and the placement of certain items designed for impulse buys. There's a reason why the main aisle is known as Action Alley in many stores. Quote Link to comment Share on other sites More sharing options...
12thman Posted December 17, 2019 Author Report Share Posted December 17, 2019 Think this is really shown in the cruise planner. You see a drink package for X dollars and when it drops you think it's a good deal, in reality the sale price is the price Royal wants you to pay. Other than the error of the $18 drink package the package remains pretty much the same on a cost per day average. At least that's what I've noticed. Baked Alaska 1 Quote Link to comment Share on other sites More sharing options...
WAAAYTOOO Posted December 17, 2019 Report Share Posted December 17, 2019 15 minutes ago, 12thman said: when it drops you think it's a good deal, in reality the sale price is the price Royal wants you to pay. The clearest (to me, anyway) and most recent example of this is with The Key. They started out selling it at a price point that made it profitable for them. Then, they immediately raised the price, only to bring it back down again to the original "profitable" point to make people feel like they were getting a bargain, when it was, in fact, the point that they wanted it to be, all along. Subsequently, there has been some fluctuation in the price of the Key, mostly around the differing ship classes. It's simply not the same value on the smaller ships as it is on the bigger ships and they've had to adjust that price down....but it is pretty much still holding at or above their original introductory price on the big ships. I'm not saying this is a bad or misleading practice. It's marketing. But sometimes you can see how it works, and it's fascinating (to me). Quote Link to comment Share on other sites More sharing options...
marti314 Posted December 17, 2019 Report Share Posted December 17, 2019 RCL is definitely participating in the fact that consumers are opening their wallets like never before. Sell them more "stuff" because they are willing to spend spend spend. It is evident with airlines for sure, in the past first class seats were rarely purchased and mostly avail for upgrades, today you are lucky if the entire FC cabin is not bought up with an incentive offer or mileage upgrade offer. People are definitely willing to throw more money into the pot these days. Look at RCL stock though, up nearly 30% in 8 months. Quote Link to comment Share on other sites More sharing options...
Balsam Posted December 17, 2019 Report Share Posted December 17, 2019 23 minutes ago, 12thman said: Think this is really shown in the cruise planner. You see a drink package for X dollars and when it drops you think it's a good deal, in reality the sale price is the price Royal wants you to pay. Other than the error of the $18 drink package the package remains pretty much the same on a cost per day average. At least that's what I've noticed. I would disagree about the drink package. For our next cruise, the DBP has fluctuated from AUD 95 down to AUD 67. There seems (on the outside) to be no rhyme nor reason to the fluctuations, but I have cancelled and repurchased it 4 times so far. I don't think it will drop below 67, but one can always hope. Quote Link to comment Share on other sites More sharing options...
Matt Posted December 17, 2019 Report Share Posted December 17, 2019 CruisinUpinLife 1 Quote Link to comment Share on other sites More sharing options...
12thman Posted December 17, 2019 Author Report Share Posted December 17, 2019 @Matt did I steal your thunder? Sorry! Quote Link to comment Share on other sites More sharing options...
Matt Posted December 17, 2019 Report Share Posted December 17, 2019 4 hours ago, 12thman said: @Matt did I steal your thunder? Sorry! Not at all! Quote Link to comment Share on other sites More sharing options...
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