I read an interesting article at Knowledge@Wharton titled Nickeled and Dimed: Is It Possible to ‘Over-fee’ Consumers? The basic questions are how much is too much?  At what point do consumers revolt against your brand and defect?

The short answer to these questions, like so many others, is “it depends.”

Customers have much different perceptions about what products are suitable for them, and about what price points are warranted.  In short, the value equation for each customer is different.  Airlines, banks and other industries have tried to address this nuance and uniqueness by charging for each item.  Their assumption is that consumers will pay for add-ons that are valuable to them and their specific circumstances.

One approach airlines haven’t tried recently is to model pricing after hotels that offer all-inclusive vacation packages.  (Southwest comes closest.)  Why not acknowledge the differences by offering pricing packages that (1) include everything and (2) require payment for specific items.  Like other industries, they should understand the typical costs to service their customers.  By offering an all-inclusive fee, airlines would appeal to customers who want simplicity and no hassles.  By continuing to offer “pay by the drink” fees they could appeal to even the most cost-conscious.

Another industry that could benefit from improved customer focus regarding choices is cable TV.  In that industry, the only pricing choices that exist contain several unneeded and unwanted programming options.  Pay per view fight night notwithstanding, wouldn’t consumers prefer the ability to pay for programming at a more granular level?  What about charging for minutes, or hours, rather than the number of channels and the type of programming?

The pivot point is that since customers have different definitions of what “good service” and “good pricing” is, companies have to manage to a wide segment of consumers.  It’s in their best interests to service both simultaneously, rather than making the choice for consumers.

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  • David Mellon

    Some pricing is a balance between what the customer is willing to pay vs what they think they want. The discussion on the Cable TV is the most compelling. How many songs are there about 500 channels and nothing’s on? It would be interesting to do an experiment where you pay for the channels you want, you can buy any channel by the day, and how that impacts the bottom line. Many services have very low next customer costs and have a very different selling strategy. Like the airline, there is little cost difference in the number of customers until they need the next plane.

    • http://pivotpointsolutions.net/ andy_mcf

      Exactly! Companies have gotten into the habit of marketing bells and whistles as if they have value to the customer. Merely increasing the number of cable channels doesn’t necessarily improve the value to the customer.

  • Larry Freed

    Great post Andrew. Choice is good. But we also need to be cautious of providing too many choices to consumers. Too much choice can paralyze customers and lead to them taking no action. Finding that right amount of choice for consumers is critical.

    • http://pivotpointsolutions.net/ andy_mcf

      Agreed. What we have seen in the airline industry, for example, is that some carriers have introduced one-size fits all pricing while others charge for each little option. Deciding how to offer air services has created a way to differentiate and appeal to customers with certain goals/needs.

      Thanks for reading and commenting!

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