At Rocketrip, they hear time and again that, when it comes to corporate travel management, companies are anxious to control their costs but worried that tightening policies will harm their company culture.
If this catch 22 is plaguing your thoughts, take comfort knowing that your priorities are in perfect order. Corporate travel is 67% more expensive than leisure travel on a per trip basis, according to the U.S. Travel Association. It’s a major expense, which companies need to keep in check. At the same time, choice and comfort in travel are increasingly important to employee engagement, recruiting, and retention — all of which affect the top and bottom lines in their own way.
Controlling costs by tightening policy damages company culture. In an ideal world, organizations could set sensible policies and trust employees to spend below the upper limits of those policies whenever possible. Unfortunately, employees do spend at the upper limits of what’s allowed, and driving behavioral change around booking travel is difficult.
Luckily, the reason for these inconvenient facts also holds the key to their remedy.
A Detour Through Behavioral Economics
In his book on behavioral economics, Predictably Irrational, Dan Ariely describes an experiment he conducted alongside Drazen Prelec and George Loewenstein on MIT students in 2006.
They asked a market research class to write down the last two digits of their social security numbers on a piece of paper. Below that, the students were asked to write what they would pay for a number of items without any previous knowledge of what those items cost.
Overwhelmingly, the students’ bids on the items in question clustered around the final digits of their social security numbers. Those whose social security numbers ended with low digits (e.g. 07 or 22) bid lower on average for every item than those whose social security numbers ended with high digits (e.g. 83 or 94).
This illustrates what’s known as anchoring. When it comes to judging value, first impressions are everything. The first number someone sees in close association with a product greatly informs how that person perceives the value of the product. As Ariely, Prelec, and Loewenstein showed, that number doesn’t even have to be a monetary amount to influence perceived value.
What Does This Have to do with Corporate Travel?
No one works for free. Compensation matters to every employee, and anchoring plays a big role in how they judge their salary and benefits. The compensation package someone accepts when they start a job is an anchor. This is what they believe their time and efforts are worth. They will be accordingly elated if that number goes up and enraged if it drops.
What many companies forget is that compensation extends far beyond base salary. Employees consider the allowances made by their corporate travel management policy to be a part of the compensation for their jobs. This even holds true when someone joins a company with a strict travel policy; the compensation may be meager, but it’s compensation nonetheless.
This explains why it’s unrealistic to expect an employee to spend any less than what their policy allows. They feel entitled to as much comfort as their policy makes possible, and surrendering some of that comfort makes almost as little sense to them as returning part of their salary. This is the missing piece of the puzzle that companies need to solve to begin saving money on travel.
Finding a Solution in the Power of FREE
Not all hope is lost, as it may seem. It is possible to convince employees to spend more frugally of their own accord. Unsurprisingly, the key to counteracting the anchoring bias also lies in behavioral psychology.
To introduce this anchoring antidote, we return to Ariely. He describes a second experiment in Predictably Irrational, conducted with Kristina Shampanier and Nina Mazar in which they set up a table in a well-trafficked area and sold both Lindt truffles and Hershey’s kisses. Anyone stopping to buy a chocolate was allowed to buy only one. The truffles were priced at 15 cents, and the Kisses cost one cent apiece. They found that 73% of people purchased a truffle, while 27% bought the Kiss.
This is where the experiment turned interesting. Ariely, Shampanier, and Mazar discounted each chocolate by one cent. The truffles were now 14 cents, and the Kisses were free. Despite the price difference remaining constant, the percentage of people choosing Kisses shot from 27% up to 69%. Conversely, the percentage of those who selected truffles dropped from 73% to 31%.
The lesson is this: the allure of free is just as strong as anchoring when it comes to judging value.
The power of free may be obvious to some. After all, who hasn’t gotten overly excited about free products and taken a t-shirt they know they’ll never wear or added $20 of extra items to an Amazon cart in order to avoid paying $5 on shipping?
For this reason, free can be used to drive behavioral change and even to counteract anchoring bias. Employees will jump at the opportunity for a new benefit, especially something offered for free, at least nominally. They’ll be so excited that they are often willing to sacrifice a different benefit, such as a bit of extra comfort on a flight or at a hotel, even if the monetary value of the new free benefit is less than the monetary value of what they’re giving up.
By including these benefits in corporate travel management, companies can save money on travel without harming culture, and that is the power of FREE.
Working with a Corporate Travel Agency
Travel policy is never one-size-fits-all. Every company has its own financial goals and struggles, and every company has a unique culture. One of the few universals is that companies who succeed in motivating employees to go above and beyond to save money are far better off than those with harsh restrictions on spending.
Understanding employees’ psychology, understanding them more deeply than perhaps even they understand themselves, is less of a pipe dream than it seems at first blush. As Dan Ariely points out in his book, people behave in predictable ways. Taking advantage of that goes a long way in knowing how to effectively motivate employees. Therein lies the key to smart corporate travel management.
Guest Blog Author: Ben Kulakofsky, Manager of Content and Partnerships at Rocketrip