In 2017, University of Chicago economist John List took a disastrous Uber ride. He had booked the car to attend a conference in downtown Chicago, where he was supposed to present a paper. The trip ended up being a (quasi-sightseeing) tour of Chicago and took twice as long as it should have. Interestingly, List was also Uber’s chief economist and took his complaint directly to the company’s CEO. “I will never use your app again because I had a terrible trip. And to add insult to injury, I haven’t even received an apology.” To which they replied, “Well, why don’t you work on it?”
And boy did he.
The study. The result was a study called Towards an understanding of the economy of apologies, published in the National Bureau of Economic Research. In it, List and three collaborators analyze an experience involving 1.5 million users to determine if and how the company should apologize when a customer has a bad experience.
List and his co-authors define a “bad trip” as one that arrives at its destination later than the arrival estimate provided by Uber. The company’s data showed that riders whose lousy rides arrived more than 5 minutes late tended to spend 5-10% less on Uber in the future than they might otherwise have expected. . In other words, people who have bad experiences are less likely to book an Uber vehicle again.
How is it mitigated? List’s team tested eight possible answers on 1.5 million cars whose “bad” trips cost them another 10 to 15 minutes. Responses came by email within an hour of the trip’s completion and combined a potential financial remedy (a promo code for $5 off future travel) with one of four apology options written:
- no excuses
- Basic apologies. For example, “Oh no! Your trip took longer than expected.”
- Apologies from the state. For example: “We know our estimate was wrong.”
- Compromise apologies. For example: “We work hard to provide you with arrival times you can count on.”
conclusion. Economists spent a few months sending Uber users these apology notes, and sometimes a $5 coupon as compensation, and found that…people love this free ride thing! The main finding of the investigation was mainly the promotional code which can be used for future travel, which restores the company’s reputation and not the apology itself. Passenger satisfaction was measured by a slight increase in net spend after receiving an apology with a promotional code. Apologies were more effective for slightly or very late rides, and less effective for moderate delays, where the rider was more likely to blame Uber for the poor experience.
But it only worked for the first delayed trip. For a second and third trip, an apology with a promotional code could have a negative effect on future spending. Economists said this “blowback” was consistent with consumers seeing every excuse as a promise of improvement, only to be disappointed again.
In an experiment with 1.5 million late Uber rides, researchers found that the best excuse is… a $5 coupon.
This leads customers to stay and spend more. However, a no-coupon excuse from the company doesn’t always work.https://t.co/Dogq83dfWm pic.twitter.com/1Gk5Lyfa8b
— Octavio Medina (@octavio_medina) December 21, 2021
The proof. The results are strikingly similar to the findings of a 2018 study by researchers from NYU and Via, a ride-sharing app that operates in New York, Chicago and Washington DC. In this experiment, researchers looked at the best way to compensate for the thousands of “frustrated” passengers who were picked up at least 8 minutes later than Via predicted. They tried to compensate them in the following way:
- Control: no compensation
- Communications: Passengers received a text message from Via apologizing for the inconvenience, but without financial compensation.
- Credit: Passengers received a $5 credit for future rides
- Waiver: travel expenses have been refunded to the passenger
Each passenger received their “compensation” with an SMS from Via. The researchers found that the $5 coupon was “much more effective” at enticing customers to spend more on Via in the future than an apology text or ride fee waiver, because providing a value of credit offers the passenger the possibility of using the service. again. The coupon also proved to be a positive revenue stream for Via, with frustrated passengers who accepted a promotion spending an average of 12% more than frustrated passengers who received no compensation.