purchases. For brands that intend to sell
to the same customer time-and-time
again, transactional utility is the default
setting for your customers. It is imperative
for such brands to ensure that they are
driving positive transactional utility on as
many occasions as possible.
One entrepreneur that understood the
concept of positive transactional utility
well was Nick Kokonas, the co-founder
of Next Restaurant in Chicago. Next
Restaurant opened in April 2011, with
celebrity chef Grant Azhataz (co-owner
as well) as the head Chef of the restaurant.
Next, was not only famous because
of Azhataz, but largely because of the
restaurants unique way of booking tables.
Next sells pre-priced tickets for tables,
for specific dates and times… similar to
how you buy a movie theatre ticket. It was
unique and successful.
A few economists advised Kokonas that
if he augmented his ticketing system
to allow people to bid, like an auction,
for the best, highly coveted tables in
the restaurant, he could maximize his
profits… classic acquisition utility.
Kokonas vehemently disagreed with the
econs. You can find the details in his blog
but here is one line from his blog that
summarizes the essence of his response
to the econs: “It is incredibly important
for any business, no matter how great the
demand, not to charge the customer more
for the good or service than what it is
worth... even if the customer was willing
to pay more.”
Kokonas felt, and rightly so, that if he
charged a customer $2,000 to eat at Next,
that customer would leave feeling that he/
she had a nice meal, but it was definitely
not worth $2,000. Most importantly, such
a customer is highly unlikely to return and
is likely to share his/her dissatisfaction
with other prospective diners.
Why would a customer behave like this?
Simply because for humans, unlike econs,
for frequent purchases (like food/eating
out), the price is not a SIF (Supposedly
Irrelevant Factor)… it is a very relevant
factor.
If humans feel the price paid for a certain
product, service or experience is excessive
or a rip off, they experience negative
transactional utility. This negative
transactional utility, more often than
not, puts the customer on a path to “seek
52 MAL28/19 ISSUE
There are numerous cases of consumers’
spending money (not saving money) to
punish a brand that they feel acted in an
unfair manner, or has a history of having
unfavorable terms of trade. If they save
money in the process, that is a bonus, but
not the primary motivation. The motiva-
tion is to punish, driven by the desire to
achieve positive transactional utility. The
motivation to punish or promote a brand
stems from irrationality.
justice” by informing people of how they
were robbed.
In fact, behavioral economics research
conducted by Richard Thaler shows that
humans have a strong dislike towards
offers that appear to be unfair. Dan
Ariely’s work on BE also points to the
same conclusion after he established
that as humans, we experience the same
feelings of disgust associated with seeing
or tasting something revolting, when
we feel ripped off or if someone acted
unfairly towards us.
Thaler’s research, which comprised of
a series of experiments dubbed “The
dictator test” and “The punisher test”,
showed that people are actually willing
to take a financial hit to punish brands
or people who act unfair. From his
research, we can also infer that humans,
and brands, are not morally obliged to be
fair in their transactions. What this tells
us is that people expect brands and others
to act and behave in a “fair” manner, but
they do not demand of it. Falling short
of this expectation however is akin to an
imprimatur to punish the brand or person
in question.
There are numerous cases of consumers’
spending money (not saving money) to
punish a brand that they feel acted in an
unfair manner, or has a history of having
unfavorable terms of trade. If they save
money in the process, that is a bonus,
but not the primary motivation. The
motivation is to punish, driven by the
desire to achieve positive transactional
utility.
The motivation to punish or promote
a brand stems from irrationality.It
is imperative to remember that this
irrationality is systematic which means
it is learned. What this tells us is
that consumers usually “practice” this
irrationality, mostly when the stakes are
small. Stakes would encompass anything
from money, time, emotion etc.
We are better at making decisions when
the stakes are small, and more often than
not this is usually for frequent purchases.
When a decision we make takes us down
the wrong path, or yields an unfavorable
outcome, that is when we become
more conscious of our irrationality and
underlying bias that led us to make the
decision.
A good example of how irrationality gets
the best of us is the Hakikisha service
from Safaricom. Hakikisha allows you to
verify the name of the person or business
entity you are sending money to before
you confirm the transaction. The window
to cancel the transaction, in case it was
erroneous is 25 seconds. The message that
accompanies this prompt tells you, “To
STOP this transaction, send any letter or
number within 25 seconds”. There is space
between this message and below that you
have two options, “Cancel” and “Send”.
If the name of the recipient is correct,
users do not have an issue with pressing
send. The irrationality creeps in when the
recipient is inaccurate and panic sets in.
Now, one would think that because this is
money we are dealing with, it qualifies as
a high stakes transaction. However, given