Travel Tech Essentialist #92: The Peak-End Rule

Sep 05, 2022

The peak-end rule is a psychological heuristic in which people judge an experience largely based on how they felt at its peak…and at its end, rather than based on the total sum or average of every moment of the experience. — Daniel Kahneman, Noble Prize Winner

Many of the stories in today’s newsletter address simple changes that improve the travel journey. I hope you find some inspiration on how to provide better, more memorable, and more unique experiences for your customers.

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1. The Peak-End Rule

In a 1993 experiment, Kahneman had participants undergo two somewhat unpleasant experiences:

- Experience 1: Participants submerge one hand in 14°C water for 60 seconds.
- Experience 2: The same participants submerge their other hand in 14°C water for 60 seconds again, plus an extra 30 seconds in 15°C water for a total of 90 seconds.
- Choice: Participants were then asked to choose which of these two experiences to repeat.
→Result: 80% of participants chose the second option (longer duration).

It turns out that one small improvement near the end completely shifted the memory of the experience. Once you’re aware of this rule, you start seeing real-life applications all over: free margaritas to arriving guests at check-in; a fruit plate and a welcome letter from the hotel manager for guests as they first walk into their rooms; the entire resort staff waving good-bye as you depart (as I had to do when I worked in Club Med many decades ago:-)…If you’re aware of creative uses of the Peak-End Rule to enable ‘wow’ moments in the travel customer journey, please share them!

Derek Yueh from the B2B Institute notes that one notable example is Eleven Madison Park – one of the top restaurants in New York City. What exactly does Eleven Madison Park do to leave people so satisfied after spending roughly $1000 for two people?

2. There is more to the art of travel than actually moving

Insightful Financial Times article on how simple changes could have made a bad train experience much better. It turns out that the pain comes from the uncertainty, not the delay.

This is something that Rory Sutherland has been asking himself for a long time: “Why is it necessary to spend six billion pounds speeding up the Eurostar train when, for about 10% of that money, you could have top male and female supermodels serving free Chateau Petrus to all the passengers for the entire duration of the journey? You'd still have five billion left in change, and people would ask for the trains to be slowed down”.

3. Travel subscription models galore

Hotels, villas, airlines, RVs, OTAs, and travel agencies have taken to offering subscription models in recent years to build deeper relationships (loyalty) with their customers and secure a steady revenue stream while they’re at it. By the way, the success of many subscription-based services has an underlying element of the Peak-End Rule, as the low point (paying) is extracted from the experience itself.

This Wall Street Journal article goes over some of the travel subscription and membership services in the market. A few of them

Inspirato - luxury vacations. Memberships start at $600/month.
Manifest - three to five-day private aircraft trips. $2,500/year.
The Vines - a wine-focused explorer’s club. Initiation fee of $100,000 (gulp) + $6000/year.
Surf Air - unlimited private aircraft flights. Starting at $2,499/month
Well Travelled - Insider city guide travel community. $150/year.
BeRightBack - surprise getaways. Starting at $67/month.
Harvest Hosts - Premium RV parking spots. Starting at $99/year

4. The State of Online Travel Agencies

My report on the full-year 2021 results for 10 publicly traded online travel companies: Booking, Expedia, Airbnb, Trip.com, eDreams Odigeo, Despegar, MakeMyTrip, lastminute.com, TripAdvisor, and Trivago. Full report.

Summary:

All 10 companies increased their revenues in 2021 vs. 2020, from +11% (Trip.com) to +146% (Despegar).
Only Airbnb had higher revenues in 2021 vs. 2019 (+25%), and its share continues to grow, from 12% in 2019 to 19% in 2021.
Of the 10 companies, 82% of revenues in 2021 came from Booking, Expedia and Airbnb.
Every single one grew marketing costs in 2021, but Airbnb did so by only 1%.
At 82%, eDreams Odigeo had the highest marketing/revenues ratio, double the ratio from the next OTA, Expedia (41%).
All, except eDreams, improved EBITDA from 2020 to 2021 (calendar years). MakeMyTrip has yet to post a positive EBITDA year since 2013 (at least)

5. First half 2022 revenue for 15 publicly traded online travel companies

Growth in revenues in the first half of 2022 is off to a good start for all competitors, with lastminute.com, Amex GBT and eDreams showing the highest year-on-year growth with 259% , 200% and 169%, respectively.

6. Five key whitespaces for the future of travel

Frog (a Capgemini global creative consultancy) released a report that identifies five areas that travel players can address to respond to shifts in consumer behaviors. In summary:

Emotionless Automation. The pandemic accelerated the trend toward automation and no-contact experiences in travel, but travelers seek human interaction and understanding at key moments. The most successful businesses will combine automated and human services in ways that minimize effort and maximize emotional reassurance for their customers.
→Example: Internova launched a “Book Human” campaign, doubling down on the human touch as a competitive differentiator.
Travel Tranquility. Wellness is no longer siloed to the destination, but has become a part of travel itself, blurring the lines between traveling for wellness and travel creating wellness.
→Example: Hyatt’s collaboration with Headspace to bring meditation experiences to all guests staying at Hyatt-branded hotels.
Sustainability Crossroads. The “Slow Travel” movement exploded during the pandemic and is shifting consumers into more sustainable practices.
→Example: ByWay offers trips love by train, boat, bus and bike with unique stays and lesser-known experiences.
Loyalty Diruption. True loyalty will be built by instant, gratifying experiences that are hyper-tailored to consumers and encourage frequent brand interaction.
→ Example: Amex launched a new “Plan It” feature integrated into the checkout funnel to give customers more flexibility on flight payment options.
Age of the Digital Nomad. Professionals increasingly prioritize geographical freedom, but this could limit emotional connection, which Gen Z craves more than other groups.
→Example: Hacker Paradise plans trips for digital nomads across the globe, choosing destinations with vibrant coworking spaces and housing, and facilitating community experiences.

Read + for details, implications and more examples.

7. The Founder’s Letter

Kevin Song, the founder of withco, introduced the world to his company with a personal letter: Recapturing the American Dream. It’s not the predictable funding or launch announcement. Kevin’s letter focused on why he started withco, why its mission is so important to him and why it should be important to the world. I found this thanks to Tim Donohue, co-founder of Aerology, who sent me his own founder’s letter: Why we’re doing this. If you have a founder’s letter for your startup, please share it in the comments section or send it to me by replying to this newsletter. Thx!

8. The Fast-Foodification of Everything

Everything is starting to look the same: buildings, cities, social media posts, and even corporate logos. Greg Isenberg discusses how brands and creators can outperform over the next decade and why this is one of the greatest times to be “standing out” in the sea of the same. He states that humans are used to being community-based, but standardization has made convenience the #1 priority, not community. But he thinks that the tide is shifting. Companies that provide products and services that connect the disconnected and create a sense of community will be the winners over the next decade. Read + Late Checkout

9. One to watch

10. Fundraising and M&A

San Francisco-based rental marketplace Zumper added $30 million to its Series D round to launch a short-term rental product.
Proptech startup Flyway secured $10 million to acquire its first properties in London as it seeks to “Airbnb-ify” the second home co-ownership model.
SiteMinder announced the acquisition of GuestJoy, a suite of customer relationship management tools that help hoteliers automate and digitize their guest communications, drive upsell revenues and strengthen direct guest acquisition. The transaction consists of an initial payment of €3.25M and a further €1.75M subject to performance milestones within 24 months.

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Charly, Software Development Tech Lead (Remote, Berlin, Amsterdam, Munich)
GetYourGuide, Global Head of Localization (Berlin)
eDreams Odigeo, Senior Data Scientist, Marketing (Barcelona)
Travel Compositor, Chief Commercial Officer (Palma de Mallorca)

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Have a great week,

Mauricio

Travel Tech Essentialist