Thinking about adding a line to your bill? Think carefully. You may end up worse off.
I had an interesting comment last week from a client, and it reminded me of an experience I had a few years ago. The client was discussing how they had, at one time, put an extra “box” charge on each package sent out. The charge wasn’t much – fifty cents per box – but it cost them business and customer goodwill. It made perfect sense to me because of something I’d seen as a sales manager.
In 1999, when fuel prices had their first big spike, I was the sales manager for a branch of a national uniform rental company. The General Manager started panicking over the fuel cost, and decided to place a $1 per invoice “fuel charge” on each customer. Predictably, customers raised the roof. Worse, by adding an additional ancillary charge that wasn’t in their contracts, we had voided their agreements – and many customers took advantage to find other providers. At the end of the day, the revenue we raised from the fuel charge was significantly less than the customer losses. I know why this was, and I know how to avoid it.
You see, customers perceived – correctly – that fuel was a normal cost of doing business for us. It wasn’t as if our trucks suddenly began consuming fuel that they had not consumed before; they were consuming the same amount of fuel – the fuel itself had just gotten more expensive. Customers perceived that since the cost of fuel was already built into our pricing structure, that the extra charge was abusive. The extra charge generated no value for them. And they rebelled.
I’m actually looking at another example of this right now. I’m writing this while sitting in the Kansas City International Airport waiting to catch a flight to Charlotte, NC, for a speaking engagement. It’s 8:30 A.M. I’m flying….well, I’m not flying Southwest, because they don’t fly to Charlotte. And it’s very, very quiet in here. That’s a big contrast to the flights for a recruiting project that I took to Louisville and Denver this week on Southwest; those terminals were very busy places.
Yet, I see reasons why. When you fly Southwest, you basically pay one price, with one exception that I’ll deal with in a moment. On the other hand, when you fly other airlines, you’re presented with a cornucopia of ways to allow them to charge you extra fees. Want to pick your own seat? That’ll be extra. Need to check a bag? Extra. That generates customer badwill. I personally have a “one-hour” rule; if Southwest can get me within one hour’s drive of my final destination, I’ll fly Southwest.
You see, what has happened is that most airlines have begun breaking out things that used to be part and parcel of the experience – seat selection and baggage, to name a couple – and designated them as “extra.” That would be like McDonalds starting to charge extra for the bun on a burger.
Not coincidentally, Southwest is by far the most financially successful of the airlines. There is one extra, however – they do sell the first line spots for boarding with a $10 charge for “earlybird check-in.” I always pay the $10. What’s the difference between this and paying for seat selection? When Southwest began charging for Earlybird Check-In, it was a new service. Since it wasn’t something they had done for free in the past, they could sell it as added value. And, for me, the value is there.
As another passenger put it to me when she was talking about the baggage charge, “Look, the plane is still going here, and they have the spot already created for the bags. So why gouge?”
That’s the problem with ancillary charges – they are perceived as gouging. If you’re trying to decide if your invoice charge is going to upset your customers, ask yourself these questions:
- Is the charge a new charge for something that you’ve been doing all the time? If so, you’ve got problems.
- Is the charge one size fits all, or is it variable? Customers will more readily buy into a charge that varies based on some facet of their service, rather than a per-invoice charge.
- Is the charge something that could just as easily be built into your regular pricing? If so, do that instead. It’s always easier to sell a price increase than an ancillary charge.
Ultimately, I believe that the less ancillary charges, the better. Extra charges invite customers to suspect that you’re trying to “get away with something,” which erodes customer trust. And of course, trust is our most valued commodity.
