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The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline

August 11, 2022 By Nagesh Belludi Leave a Comment

Why People Think Spirit is a Horrible Airline---Loss Aversion Mental Model

When Spirit Airlines pivoted to competing on price in the late 2000s, it quickly gained a reputation not only for operational inefficiencies but also for its in-your-face, take-it-or-leave-it attitude towards customer service.

Where other airlines charged by-the-package fares for the flight experience, Spirit pared back service and introduced an a la carte pricing model. Charging for the “ancillaries”—i.e. everything optional, including water—allowed Spirit to keep ticket prices down and appeal to price-sensitive travelers willing to sacrifice the usual amenities for a lower ticket price.

In the ensuing years, the unconventionality of this business model did not go down well with customers. Much of the flying public’s frustration with Spirit had to do with Loss Aversion. That’s the notion that the emotional disappointment of a loss is more extreme than the joy of a comparable gain. If finding a cheaper fare on Spirit felt delightful, giving up some—or all—of the savings to purchase ancillaries and surrender the savings felt utterly miserable.

Passengers felt ripped off by these seemingly hidden fees, especially when the true cost of flying Spirit end up greater than what the initial ticket price led them to believe.

Spirit 101---Spirit Airlines Perception Problem Spirit became quickly convinced that there was a perception problem—its customers didn’t fully understand how its fares work. Particularly, first-time customers blindly presumed that Spirit Airlines works the same way as other airlines. In reality, there were no hidden or excessive fees, and passengers can only pay for what they needed or want. In 2014, the airline introduced its “Spirit 101” campaign to educate customers and alter their perception. With time and with the increased adaptation of the “Basic Fare” model and curtailed customer service by every other airline, passengers’ expectations have since been right-sized. Spirit Airlines has come a long way, and its customer service has improved vastly.

Further studies on loss aversion have shown that a cascade of successive fees is worse than the cumulative: i.e. three ancillary fees that add up to say, $70, feels a lot worse than a single $70 fee. Appropriately, Spirit offers a “Bundle it Combo” package.

Wondering what to read next?

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  5. A Sense of Urgency

Filed Under: Business Stories, Mental Models Tagged With: Aviation, Biases, Customer Service, Decision-Making, Emotions, Entrepreneurs, Innovation, Marketing, Mental Models, Parables, Persuasion, Psychology, Strategy

How to … Read More Books

August 8, 2022 By Nagesh Belludi Leave a Comment

Read More Books With all of life’s distractions, here’s how to make time to read and get through more books:

  • Don’t make reading a chore. Read because you want to, and like to.
  • Become more selective. Choose topics you know you’ll enjoy—topics that have engrossed you previously.
  • Rather than choosing a book that you haven’t read yet, opt to reread one of the more helpful books you’ve read in the past. It usually takes multiple exposures for an idea to sink in.
  • Never be without a book; have one at hand wherever you are. Then, squeeze in some reading whenever you have a few minutes to spare—whether on the bus or while waiting at the dentist’s. (Charlie Munger, a voracious reader, has said, “As long as I have a book in my hand, I don’t feel like I’m wasting time.”)
  • Don’t feel obliged to complete everything you’ve started. The more enjoyable your read, the quicker you’ll get through it. If a book doesn’t hold your interest (“spark joy” to borrow Marie Kondo’s concept,) say, by page 50, stop reading.
  • Be decisive with the no-good books. Turn four pages at a time if you have to. Frequently authors just blather endlessly about studies and anecdotes that are of marginal relevance to the book’s premise.
  • Take a respectable speed-reading course to learn how to use your eyes to focus and gloss over groups of words (“chunking”) while making sure you dwell on what needs to be retained.
  • Make reading social. Join a book club—it’ll help you get more out of a title. Hearing other people’s interpretations—whether you agree with them or not—makes you think more about your own reading and synthesis.
  • Have a system to jot down, record, summarize, organize, and recall whatever you’ve read.

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Filed Under: Sharpening Your Skills Tagged With: Books, Discipline, Reading

Inspirational Quotations #957

August 7, 2022 By Nagesh Belludi

Power always has to be kept in check; power exercised in secret, especially under the cloak of national security, is doubly dangerous.
—William Proxmire (American Politician)

It would be nice if the poor were to get even half of the money that is spent in studying them.
—Burton Hillis (William E. Vaughan) (American Columnist)

After an event, a signal is always crystal clear; we can now see what disaster it was signaling since the disaster has occurred. Before the event, it is obscure and pregnant with conflicting meanings.
—Roberta Wohlstetter (American Historian)

A good conscience is a continual feast.
—Robert Burton (English Scholar, Clergyman)

With much we surfeit; plenty makes us poor.
—Michael Drayton (English Poet)

Forget the times of your distress, but never forget what they taught you.
—Herbert Spencer Gasser (American Physiologist)

Whoever wants to reach a distant goal must take small steps.
—Helmut Schmidt (West German Statesman)

From birth to age 18, a girl needs good parents, from 18 to 35 she needs good looks, from 35 to 55 she needs a good personality, and from 55 on she needs cash.
—Sophie Tucker (American Singer)

Do not demand love. Begin to love. You will be loved. It is the law and no statute can alter it.
—Chakravarthi Rajagopalachari (Indian Statesman, Author)

Remember, if you ever need a helping hand, you’ll find one at the end of your arm … As you grow older you will discover that you have two hands. One for helping yourself, the other for helping others.
—Audrey Hepburn (Belgian-British Actress)

The delicate thing about the university is that it has a mixed character, that it is suspended between its position in the eternal world, with all its corruption and evils and cruelties, and the splendid world of our imagination.
—Richard Hofstadter (American Historian)

When I quit working, I lost all sense of identity in about fifteen minutes.
—Paige Rense (American Journalist)

We are different, in essence, from other men. If you want to win something, run 100 meters. If you want to experience something, run a marathon.
—Emil Zatopek (Czech Athlete)

Filed Under: Inspirational Quotations

Tips for Working for a Type-A Boss

August 4, 2022 By Nagesh Belludi Leave a Comment

Type-A bosses tend to accomplish great things, at least short-term. But their high intensity and impatience could make them hard to work for.

Tips for Working for a Type-A Boss If you’re more of a laid-back employee, realize that most of the time, Type-A’s intensity isn’t about you. It’s the way she relates to the world around her. Type-A is what Type-A does.

Here’s how to deal with the overly amped-up style of the Type-A boss:

  • Speak up. Do your homework and anticipate needs/wants. Be proactive and take the initiative on everything. Bring solutions, not problems. If you disagree with something, communicate directly.
  • If nothing you do seems perfect enough for your boss, don’t assume the worst and put your guard up. Be more receptive to evaluation. If you’re constantly being challenged to add “one more thing,” seek specific feedback on how she’d like you to refine your work.
  • Set boundaries on what she can expect from you. Ask for clear performance goals. With Type-As, it’s always about them; you can’t hold yourself accountable for their personality. When it gets tough, try not to take it personally. Ask for what you need, but choose your battles wisely.

Idea for Impact: One of the best ways to manage a Type-A person is to try to be Type-A yourself. You don’t have to morph into an ego-driven jerk, but try to be more organized and keep on top of everything.

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  5. The Good of Working for a Micromanager

Filed Under: Managing People Tagged With: Conflict, Getting Along, Managing the Boss, Personality, Relationships, Winning on the Job

Evolution, Not Revolution

August 1, 2022 By Nagesh Belludi Leave a Comment

Innovation often transpires from synthesizing existing ideas together in new ways, as the following case study on the iPod will illuminate.

Steve Jobs introduces the iPod---Innovation is Evolution Not Revolution In some sense, the iPod wasn’t a breakthrough innovation at all. It emerged from Steve Jobs’s “digital hub” approach to integrating iMac software for playing, editing, and managing photos, music, and movies. According to Walter Isaacson’s masterful biography of Steve Jobs (2011,) when Apple designers learned that Toshiba had newly prototyped a tiny 1.8-inch hard drive that could hold five gigabytes of storage (that’s about a thousand songs,) they conjured up a digital music player. Apple found that existing gadgets were “big and clunky or small and useless” with “unbelievably awful” user interfaces.

Sony’s Walkman had previously proven the market potential of portable audio players, having sold 200 million units in the two decades before Apple conceived the iPod. Napster had offered digital audio file distribution for over five years. Finger-driven touchscreens were pioneered in the 1960s, and Citibank rolled out touchscreen ATMs in the 1980s. (Apple didn’t offer touchscreens until 2007 with the iPhone.) Hence, the iPod’s innovation was in bringing all these capabilities together in a way that was easier to use and relevant to the consumer. Dartmouth’s strategy professor Ron Adner writes in The Wide Lens: What Successful Innovators See That Others Miss (2013,)

Apple was three years late [behind Creative, SanDisk, Sony, and Samsung who had previously launched portable music players]. As we’ll see again in the case of the iPhone, Jobs tended to be late for everything because he wanted everything to be ready for him. Reflecting on catching technology waves in 2008, he said, “Things happen fairly slowly, you know. They do. These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you’re going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely, it actually unfolds fairly slowly. It takes years.” Jobs’s discipline paid off.

Idea for Impact: Innovation often builds on existing technological competencies or as a synthesis of smaller innovations.

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Filed Under: Business Stories, Mental Models, The Great Innovators Tagged With: Apple, Creativity, Critical Thinking, Entrepreneurs, Innovation, Problem Solving, Steve Jobs

Inspirational Quotations #956

July 31, 2022 By Nagesh Belludi

Power is the ability to do good things for others.
—Brooke Astor (American Writer, Philanthropist)

It’s been very important throughout my career that I’ve met all the guys I’ve copied, because at each stage they’ve said, “Don’t play like me, play like you.”
—Eric Clapton (British Musician)

Change does not change tradition. It strengthens it. Change is a challenge and an opportunity, not a threat.
—Prince Philip, Duke of Edinburgh (British Prince)

Illusion is needed to disguise the emptiness within.
—Arthur Erickson (Canadian Architect)

With their souls of patent leather, they come down the road. Hunched and nocturnal, where they breathe they impose, silence of dark rubber, and fear of fine sand.
—Federico Garcia Lorca (Spanish Poet)

Striving for excellence motivates you; striving for perfection is demoralizing.
—Harriet B. Braiker (American Psychologist)

Frustrated love has been the incentive for many great works.
—John Michell (English Esotericist, New Age Writer)

The best match in the world will not light a candle unless the wick be first suitably prepared.
—Algernon Blackwood (English Novelist)

No president who performs his duties faithfully and conscientiously can have any leisure.
—James K. Polk (President of America)

The measure of a man’s real character is what he would do if he knew he would never be found out.
—Thomas Babington Macaulay, 1st Baron Macaulay (English Writer, Politician)

In comedy, reconcilement with life comes at the point when to the tragic sense only an inalienable difference or dissension with life appears.
—Constance Rourke (American Historian)

Many people feel empty, a world that seemed so strong just collapsed. Forty years have been wasted on stupid strife for the sake of an unsuccessful experiment. The values gathered together have vanished, the strategies for survival have become ridiculous. And so forty years of our lives have become a story, a bad anecdote. But it may be possible to remember these adventures with a kind of irony.
—Gyorgy Konrad (Hungarian Novelist, Essayist)

I may have faults, but being wrong ain’t one of them.
—Jimmy Hoffa (American Labor Leader)

Filed Under: Inspirational Quotations

Quantity is the Path to Quality

July 30, 2022 By Nagesh Belludi Leave a Comment

Consistently Not Stupid Happiness is not how much time you spend doing what you love, but how little time you spend doing what you hate.

As in Charlie Munger’s recipe for success: “It is remarkable how much long-term advantage people have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” And “I know I’ll perform better if I run my nose in my own stupid mistakes.”

Idea for Impact: The road less stupid can keep you from silly errors, if not all errors.

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  4. Question Success More Than Failure
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Filed Under: Mental Models Tagged With: Attitudes, Decision-Making, Luck, Meaning, Wisdom

Why Investors Keep Backing Unprofitable Business Models

July 29, 2022 By Nagesh Belludi Leave a Comment

Why Investors Keep Backing Unprofitable Business Models Investors have heaped billions into Q-Commerce—especially the rapid grocery startups—hoping to hook consumers on the convenience of groceries that would turn up immediately, sometimes in minutes.

I’ve never really fathomed how the small-basket orders of low-margin groceries can endlessly compensate for the labor-costs and overheads, even after discontinuing the generous referral bonuses, discount codes, and freebies enticing customers. The prospects may evolve if these startups subsist on ever more funding and develop massive businesses with efficiencies from scale. But then they’re right in Amazon’s wheelhouse.

Idea for Impact: Some business models are never created to be profitable, and investors should be wary of encouraging—and funding—loss-making propositions. The lure of backing an initial entrant, capturing market share, and then selling out to a more determined fool isn’t viable! Who needs goods delivered in such a rush for such charges, anyway?

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Filed Under: Business Stories, The Great Innovators Tagged With: Entrepreneurs, Ethics, Innovation, Marketing, Persuasion, Strategy, Thought Process

Giving Feedback and Depersonalizing It: Summary of Kim Scott’s ‘Radical Candor’

July 28, 2022 By Nagesh Belludi Leave a Comment

It takes finesse to tell your boss and colleagues what you really think and address conflicts with urgency. When individuals are hesitant to talk frankly to each other, unresolved conflict can wreak havoc on productivity and culture.

'Radical Candor' by Kim Scott (ISBN 1529038340) Former Google and Apple executive Kim Scott’s bestselling Radical Candor (2017) can help if you struggle with delivering honest feedback with the subtlety that suits the relationship. To avoid turning criticism into a personal attack, Scott suggests phrasing feedback using a “situation-behavior-impact” recipe (identical to the Manager Tools’ Feedback Model I’ve recommended for years): describe the situation where the problem behavior appeared, the other’s specific actions, and their impact. Instead of “You’re sloppy,” tell, “You’ve been working nights and weekends and it’s taken a toll on your accuracy.” Scott also extends directions on how to educate bosses for dealing with conflict, striking positive solutions, and fostering a fertile conflict-mindset that everybody embraces.

Recommendation: Speedread Radical Candor. If you’ll condone the narrative inconsistencies, excessive name-dropping, and banal Silicon Valley tenor, this text will teach you how tactful conflict and giving honest feedback can be an impetus for positive change. Bruised egos and problems nipped in the bud are better than the alternative—stalled projects, mediocre work, and resentment that festers on.

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Filed Under: Effective Communication, Managing People Tagged With: Coaching, Conversations, Feedback, Great Manager, Group Dynamics, Leadership

Sometimes a Conflict is All About the Process

July 27, 2022 By Nagesh Belludi Leave a Comment

Sometimes a Conflict is All About the Process There’s a considerable difference between a “decision conflict” and a “process conflict,” and it’s necessary to disentangle the two.

A decision conflict is about a choice or another to be made. But a process conflict is about the approach, e.g., where making the choice has lacked rigorous deliberation (haste, a lack of participation from important stakeholders, contempt for shared priorities, lack of attention to the tradeoffs, and so forth.) A sound decision is one that has ensued from a meticulous-enough thought process, even if the decision emerges to be defective in the fullness of time.

Idea for Impact: Make the “how” the anchor for your decision-making process. Improving the quality of decisions is developing better frameworks for making those decisions. Worry about bad decision processes.

Wondering what to read next?

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  4. How Stress Impairs Your Problem-Solving Capabilities: Case Study of TransAsia Flight 235
  5. Presenting Facts Can Sometimes Backfire

Filed Under: Mental Models, Sharpening Your Skills Tagged With: Biases, Confidence, Conflict, Decision-Making, Risk, Thought Process

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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Recently,

  • The Loss Aversion Mental Model: A Case Study on Why People Think Spirit is a Horrible Airline
  • How to … Read More Books
  • Inspirational Quotations #957
  • Tips for Working for a Type-A Boss
  • Evolution, Not Revolution
  • Inspirational Quotations #956
  • Quantity is the Path to Quality

Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!