“in terms of their own realities and their own situation.” is a huge caveat. Essentially plenty of customers behave irrationally – by any sensible definition of rational. I agree, to make them customers and keep them as customers you need to develop theories that can make sense of their behavior. And it doesn’t make sense to think if they behave irrationally that means randomly (chaotically, unpredictably, uncontrollably). Customers can be predictably irrational (as a group).
Seeing that people will choose* to fly lousy airlines because the initial price quoted is a little bit cheaper than an alternative (or because they are in a frequent flyer program) you can say the customer is behaving rationally if you want. Coming up with some convoluted way to make their decision, which based based solely on their desired outcomes (and cost factors etc.) is not rational, to be seen as rational seems like a bad idea to me. Instead figure out the models for how they fail to behave rationally.
They consistently chose an option they shouldn’t rationally want; in order to save some amount of money they don’t care about nearly as much as the pain they will experience. And the amount they will then complain about having to suffer because they chose to deal with the badly run airline. That isn’t rational. It is a common choice though.
The problem is not in thinking the customers are being irrational for not buying what you are selling. The problem is in thinking the customers will behave rationally. Your theory should not expect rational behavior.
There are plenty of other examples where customers make irrational decisions. I don’t think calling them rational (within the irrationality of their “own realities” makes sense). People will buy things because they think it is a better bargain to get the more expensive item that is the same, for more money, because originally the store charged more and now it is on sale. Anchoring isn’t an understanding of how people are rational. It is an understanding of how psychology influences people in ways that are not rational.
Long Term Thinking with Respect for People
Toyota nearly went bankrupt near 1950 and had to lay off a third of their employees. A huge focus of the Toyota Production System as envisioned by Taiichi Ohno was to secure the long term success of the company. The priority of doing so is easier to see when you respect people and are in danger of witnessing the destruction of their careers.
I can’t find the quote (maybe Jon Miller, or someone else, can provide one), but I recall one along the lines of the first priority of management is providing long term viability of the company (my sense is this is first due to the respect of the workers and also for all the other stakeholders). The respect for people principle requires executive put the long term success of employees at the top of their thinking when making decisions for the company. I don’t believe it is a ranked list I believe there are several things right at the top that can’t be compromised (respect for people, safety of society, support for customers…).
This means innovating (Toyota Management System, Toyota Prius, Toyota Robots, Lexus brand, etc.) and seeking growth and profit with long term safety that does not risk the failure of the company. And it means planning for the worst case and making sure survivability (without layoffs etc.) is nearly assured. Only when that requirement is met are risks allowed. You do not leverage your company to put it at risk of failure in dire economic conditions even if that would allow you to be more profitable by various measures today. And you certainly don’t leverage just to take out big paychecks for a few short term thinkers.
The economic situation today is extremely uncertain. The whole eurozone financial situation is very questionable. The government debt burden in the USA and Japan is far too high (and of course Europe). China is still far from being a strong economy (they are huge, fast growing and powerful but it is still fairly fragile and risky).
The failures in the current financial system have not been addressed. Band-aids were applied to provide welfare to the largest 30 financial institutions in the form of hundreds of billions or trillions in aid. The system was left largely untouched. It is hard to imagine a more textbook example of failing to fix the causes and just treating the symptoms. This leaves a huge financial risk poised to cause havoc.
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