Thursday, August 19, 2010

Competing on Easy to Understand Margins

I heard an ad on the radio for United Airlines saying that the company's airline miles are extremely easy to redeem, as there are no blackout dates, etc.

Of course, there's no such thing as a free lunch, so if United miles are easier to redeem than those of other airlines, then they probably are more difficult to earn. However, it requires a lot more research to compare miles at this margin. I would expect consumers to prefer products that are better on understandable margins, even if they are inferior overall once one factors in all the technical details.

For instance, many people would prefer a checking account with no monthly fee to one with a monthly fee, even if the latter has lower overdraft fees or is superior in other ways. Maybe it's a good thing that the government is cracking down on the more obscure bank fees, which could homogenize some elements of banking products that many people don't understand.

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