Rory Sutherland: How Michael O'Leary has spoiled yield management for all
By Rory Sutherland, Vice-Chairman, Ogilvy Group UK, campaignlive.co.uk, Friday, 01 July 2011 12:00AM
It is fashionable to say that, regardless of technological changes, human nature stays the same. This is often true.
But if human nature doesn't change, human expectations do. And many of our perceptions have little to do with reality, but are a product of how an experience compares with prior expectations.
For this reason, part of me regards Michael O'Leary as a marketing genius. So great is my trepidation before a Ryanair flight that when I am not marched into a cell and asked to pay a £50 surcharge not to be pistol-whipped by Serbian mercenaries, I find myself saying: "That really wasn't too bad, was it?"
Unarguably, the internet has caused a dramatic change in many of our expectations. Direct marketers from the 80s will remember "allow 28 days for delivery"; today, this would be laughable. The web has also raised our need for control - to a point where I am peeved when booking cinema tickets if I cannot choose where to sit. And it has reshaped our conception of price. A decade ago, you blamed the airline if you learned the passenger sitting next to you paid £50 less; now you blame yourself.
Yield management, where pricing varies according to demand, is one of the most important ideas in business in the past 50 years. It is also one of those rare ideas which, by and large, benefits everyone: businesses get more revenue (and a wider range of potential customers); consumers enjoy the chance of lower prices; and even the planet gains through better use of resources (fewer trains travelling empty, and so on).
But this vital idea requires widespread consumer acceptance in order to work. And that is where I take issue with Ryanair. Because, by perverting the practice of making transparent price-demand trade-offs into a kind of money-making surcharge, they risk discrediting the whole wonderful idea. Already ads reading "London to Faro, £38" are met in research groups with: "In your dreams."
The practice only works when it benefits everyone.
Charging for tea and coffee is a straightforward trade-off on a two-hour flight. Ditto priority boarding. But charging for checked-in luggage is not. Why? Well, it creates what are called "negative externalities". Whether you pay or not, most of your fellow passengers now bring so much hand-luggage aboard that laptops are crushed and boarding delayed while more than 100 people (immobilised by multiple layers of clothing) viciously fight for overhead locker space.
Mussolini was furious when the Germans adopted fascism: "They will take my beautiful idea to ludicrous extremes and ruin it for everyone."
I feel much the same about Michael O'Leary and yield management.
This article was first published on campaignlive.co.uk
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