Duty- free, influence and loss aversion theory- why you can’t resist buying

You only need 1 crazy visionary

It was the end of World War II when people started to travel? internationally? again. This was 1947, no cellphones, wifi or Amazon.

Ports for ships and planes where different, no screen checks or screening machines, you could even smoke everywhere. Remember those days???

People where taking cruises from Europe to the US and viceversa. Planes were doing layovera to refill, and sometimes people needed to leave the plane and wait. One of their stop-overs was the airport in Shannon, Ireland, where a man named Brendan O’Regan worked as a “catering comptroller” .

O'Regan observed that customers preferred shopping even on layovers in his airport. Many nations were in need of a major source of income following World War II, then O'Regan had the idea: why not encourage airport-specific shopping by making the items on offer absolutely tax free? How precisely, though, should one get past those annoying national rules on taxing goods and services? Easy. Just ask the Irish government to designate Shannon airport outside of Ireland as in not a part of Ireland. They did this, and O'Regan so started the period of duty free.

He obviously couldn't make that decision for every nation on Earth, hence O'Regan presented his idea to the New York Convention on International Travel in 1954, where everyone could agree on the specific duty-free policies.

The popularity of duty-free shopping quickly spread:

• 1954: O'Regan presented his proposal at the New York Convention on International Travel
• 1957: Amsterdam opened its first duty-free store
• 1960s: Duty-free shopping reached the United States, with the first shops opening in Hawaii

“Making an offer people can’t refuse” - Loss aversion

Loss aversion theory posits that people tend to prefer avoiding losses over acquiring equivalent gains. In other words, the psychological impact of losing something is generally more powerful than the pleasure of gaining something of equal value.

Understanding Loss Aversion

Loss aversion is a key concept in behavioral economics, first proposed by psychologists Daniel Kahneman and Amos Tversky in 1979. Research suggests that losses are psychologically about twice as powerful as gains. This means that people feel the pain of losing $100 more intensely than the joy of finding $100.

How airports use loss aversion

Easy!!!

Consumer behavior: The fear of missing out (FOMO) in sales and limited-time offers capitalizes on loss aversion.

If you love a drink occasionally, US citizens traveling abroad get a 25% to 50% discount on liquor. Before you buy Scotch and Cognac, remember the $800 monthly limit ($1,600 if the whole family wants to indulge).

DFS provides so many liquor and wine brands that you might easily hit that maximum, but everyone is limited to 1 liter.

Now the fun /nerd part- INFLUENCE-

Have you ever noticed how the Duty Free is set in airport and ports?

Duty-free shops are strategically placed in airports to maximize exposure to travelers. They are usually found in the following areas:

1. After Security Checkpoints: Many duty-free stores are located immediately after security screening areas, where passengers enter the secure zone of the airport.
2. Near Gates: Shops are often positioned close to departure gates, allowing passengers to browse while waiting for their flights.
3. Central Terminal Areas: Large duty-free zones are frequently located in central areas of airport terminals, creating a shopping hub.
4. International Departure Areas: Since duty-free shopping is primarily for international travelers, these stores are concentrated in international departure zones.

Store Layout Strategies

Airports and retailers use specific design tactics to encourage shopping:

• Winding Paths: Duty-free areas often feature meandering walkways that guide passengers past various product displays.
• Open Storefronts: Many duty-free shops have open entrances, blending seamlessly with the terminal to draw in passersby.
• Category Zoning: Within larger duty-free areas, products are typically grouped by category (e.g., cosmetics, liquor, electronics) to facilitate easy navigation.
• Luxury Boutiques: High-end brands often have dedicated spaces or mini-boutiques within the larger duty-free area.

Examples from Specific Airports

While layouts vary by airport, here are a few examples:

• Chicago O'Hare (ORD): Duty-free stores are located in Terminal 5, with multiple locations throughout the international concourse.
• Dubai International (DXB): Features an extensive duty-free area in Terminal 3, spanning multiple levels and product categories.
• Heathrow (LHR): Each terminal has its own duty-free shopping area, typically located centrally after security checkpoints.

Other significants are the visuals, smell and music

• Lighting
• Luxury brands to attract vendors and clients
• Images
• DUTY FREE- FREE TAX, every 1 foot distance
• Product testing

So what the HECK does this have to do with my business???

A lot. Using heuristics, biases, and neuroscience you can get clients’ attention. Utilizing theories like loss aversion

Examples:

• Product placement
• Offers
• FOMO
• Colors
• Lighting
• Smell
• Music
• Decor

If you think that selling is about the product, you ARE 100% WRONG. It is science, neuroscience, Neuromarketing, witchcraft, and more behind every brand.

Think Apple stores, Sephora, or Macy’s they use all the tricks in the book and more.?

Similar Theories and Concepts

• Cognitive Bias
• Prospect Theory
• Endowment Effect
• Myopic Loss Aversion

?Ready???

If you are looking to use every tool available to influence clients, prospects and vendors, set a call with us.?

We work with financial institutions to consumer products.

Remember

It is not what the clients want, it is the complete experience. And we can make it happen!

Contact us to set a meeting with one of our Business Developing / Research experts at [email protected]

See you

Susan