Motley Fool Hidden Gems Investing - Dan Heath on the Economic Upside of “Moments”

Episode Date: January 26, 2021

Creating a powerful experience for customers can deliver economic upside for businesses. Dan Heath, co-author of the best-selling book The Power of Moments: Why Certain Experiences Have Extraordinary Impact, explains how Southwest Airlines makes more money by entertaining passengers during their flights.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill. With The Motley Fool Money Extra, I'm Chris Hill. Dan Heath and his brother Chip have written several bestselling books about business and behavioral economics. One of the most recent is The Power of Moments, Why Certain Experiences Have Extraordinary Impact. In the book, they studied how different businesses had figured out ways to create experiences, both for employees and customers, that benefited all parties involved. When I talked with Dan Heath, one of the things we discussed was one example from the book involving Southwest Airlines. Now, if you've ever flown Southwest, you probably know that one of the ways they try to have fun is with amusing in-flight announcements. But in all my

years of flying, it never once occurred to me that those funny announcements also provided an economic upside for Southwest Airlines. Like you, I always thought of this as just this is Southwest personality coming out. It turns out there's actually a pretty strong tradition of funny flight safety announcements at Southwest to the point where at headquarters there's a wall that enshrines some of the best lines they've created. Like one of my favorites is, you know, put the oxygen mask first on yourself and then on your child. If you're traveling with more than one child, pay attention to who has the greater earning potential. Sort of like cynical parenting humor. And so Chip and I started working with their insights team at Southwest. And like many

companies, they've got troves of data about their customers. And we asked a provocative question, what are these funny flight safety announcements worth? Are they worth anything? Are they just, you know, improvisational fun or do they have business value? And it turned out they had the data that they needed to answer that question because they knew, you know, they could pinpoint which customers were highlighting these announcements in surveys about their flights and they had purchase histories from these same customers. So you could look at what were they spending on flights before the point when they signaled one of these announcements and what they spent after. Well, it turns out when people pinpointed an announcement as a positive thing

that happened on one of their flights, over the next year they would fly on average about another half flight. Now obviously that's just a statistical average. That's a very difficult thing to pull off in reality, the half flight routine. So that gives you a sense that this is creating real value. It's creating more loyalty. People are choosing Southwest over an alternative for a given route. And so then we took a step further and we said, we knew from the surveys that about 1.5% of customers were citing these announcements unprompted in surveys. And so just as a hypothetical, we said, what if we were able to double that from 1.5% of people citing it to 3%? So not some gargantuan leap, but just something

that we could realistically implement. What would that be worth? And the number that popped out of the analysis astonished all of us. $138 million in additional revenue annually, every year, because flight attendants were given the license to do something fun that entertained them, that entertained the guests. And to me, this is a reminder that moments matter, but not every moment has to be perfect to deliver a great experience. You know, at the Magic Castle, the rooms are average. The lobby is average. The pool is average. But because some moments are magical, people remember it really fondly. At Southwest, the boarding process is below average. The snacks are below average, right? You're packed in in a way that is below average. And yet,

because they focus on these moments, these kind of fun, spontaneous moments, because they're friendly, they create these peaks that make the experience remarkable. And I think that's the lesson for all of us who are in the business of serving people is not everything has to be perfect. I'm Chris Hill. Thanks for listening. We'll see you next time.