I’m fascinated with behavioural finance, which studies and attempts to explain why people make irrational financial decisions. One of those weird ticks people have is called loss aversion, whereby the pain of losing is psychologically more powerful than the pleasure of an equivalent gain.
The folks at WestJet must also be fans of behavioural psychology because they understand loss aversion and they’ve designed a clever marketing trick to get their customers to increase spending on WestJet flights and vacations.
Those familiar with WestJet’s marketing may have seen this ‘exclusive’ offer in which the airline deposits 50 WestJet dollars into your Rewards account for a limited time, typically two days, for you to use towards a flight. The bonus dollars disappear if you fail to book a flight or vacation within the limited time offer period.
WestJet’s Marketing Trick
I reached out to WestJet to comment on what I think is a brilliant marketing tactic. Jayce Loh from their Loyalty team said WestJet started testing the targeted Limited Time Member Appreciation Offers in early 2015 and they have become an ongoing targeted marketing program.
The concept was developed in-house and is intended to show loyalty members how powerful WestJet Dollars can be.
“The ability to use WestJet Dollars on any available seat remains one of our biggest differentiators in comparison to our competition,” said Loh.
Loh said that while no specific behavioural psychology theory was cited in development of the initiative, loss aversion was certainly a factor that was considered when setting the short redemption cycle.
Only WestJet Rewards Members who opt-in to marketing emails will receive the Limited Time Member Appreciation Offer, something the team feels will entice non-members to join and hopefully “be delighted with bonus WestJet Dollars sometime during the year.”
Lisa Kramer, professor of finance at the University of Toronto, was not familiar with this campaign but also found WestJet’s marketing tactic to be clever:
“A $50 deposit in an account is a bit different from, say, a $50 coupon,” said Kramer.
Quantitatively they are equivalent, she said. If someone is going to book a trip, their final purchase price will be the same whether they use the deposit or the coupon. But there are likely to be differences in the way people perceive the two, and this could lead to changes in purchasing behaviour.
It boils down to framing. A coupon is a potential discount, and people don’t fret too much if they don’t use a potential discount. A deposit that will be withdrawn if not used, on the other hand, feels much more like money in your pocket. The idea of losing it is more painful than the idea of not using a coupon.
“I don’t know whether WestJet did any market research before launching the campaign, comparing the efficacy of the two approaches across large samples of their clients, but it wouldn’t surprise me if they had,” said Kramer.
When asked about the success or popularity of the Limited Time Member Appreciation Offer, WestJet’s Loh simply stated that the ongoing nature of the program ‘could be used as a proxy for the success of the program.’
I’ll admit I fell for the ol’ loss aversion trick the very first time I received this Limited Time Member Appreciation Offer from WestJet. It was 2016 and I didn’t plan on booking a flight at that moment, but something in the message struck me and I couldn’t pass up the chance to use those $50 bonus dollars.
Trouble is, I booked too late. The two-day window had passed when I booked flights to Vancouver and the bonus dollars had already been whisked away! No matter. I called WestJet and they credited the 50 WestJet Dollars back onto my account, saving me even more loss aversion pain and regret.