Airlines, phone companies, car rental firms, banks, tickets agencies – undisputed kings of the surcharge. Once upon a time these charges were hidden, buried deep within your bill, waiting to surprise you at the end of the month or at checkout. Over the last few years those surcharges have not only been growing rapidly (it all started with rising fuel costs), but they are now becoming more and more visible. In fact, many just add an undefined service charge – period. Businesses struggling to be profitable in the recession are moving from the bundle to an à la carte model, offering once included services as optional “extras”. For some industries, this shift is part of a broader change driven by evolving economics, and the consumer appears all-too-willing to foot the bill. But for others, these changes will be less willingly accepted, ensuing in a brand backlash. They argue it’s all about transparency and choice, a new mindset built around a “you get what you pay for” service - but a slippery slope that could just have larger, longer-term repercussions than they realize.
Some brands, in fact some entire industries, seem to be driving the real value of branding out of the equation, turning their businesses into commodities, eroding goodwill and simply reducing their offering to one based solely on price. Short-term, they are using loyalty programs or promotions to retain consumer commitment and engagement, especially from their hard core business users, but they are fighting a losing battle.
Airlines are one of the most obvious examples. How much do you really care about flying the big boys – American, Delta or United, if someone else offers an even slightly cheaper ticket? In fact, what are the differentiated brand values of these services? Brands are built on promises meant to help businesses build preference and defend their price points, but how are they accruing value when all they do is ask you to pay extra for an aisle seat, an extra bag, a bag of nuts or even a pillow? There are brands like the cut-throat European airlines Ryanair and EasyJet whose promise is based completely on price, but if that’s the battle you want to fight, then you are going to have make some serious sacrifices to win it. How far will the airlines go? Ryanair’s dedication to stripping costs out of their operations goes as far as potentially charging for the use of lavatories and even creating standing room only flights.
The skies aren’t the only place we’re seeing extraneous charges and reactive “cheap” shots. Ticketmaster, who charges up to 40 percent above advertised ticket prices, has mastered the art of surcharging. Not only do concert-goers get slapped with a general convenience charge, but they also see their purchase price grow as they click their way through the transaction. On Ticketmaster.com, charges for processing and shipping are just the beginning. In fact, even those who are willing to print their tickets at home or travel to the event site to claim their passes see undefined, unsubstantiated and unnecessary fees totaling well over $9 per purchase. Wish there was a way to forego the King of Fees? For some, there is. True music lovers and sports addicts are seeking and finding new ways to score cheap seating every day. They are turning to “all-in” ticketers like Live Nation who are upfront with the total ticket cost and re-sellers like Stub Hub for the best value. Ticketmaster is definitely paying attention as they watch these competitors eat into their market share.
If anything, in these difficult times brands should be working with their consumers, not nickel and diming them for every penny they can get. Consumers want great value, but they also understand that companies need to make money. Striking the right balance is a combination of short-term business success and long-term loyalty and brand value. And sometimes those little surcharges are the breaking point between feeling good about a brand and feeling abused.
Not all brands are going there. Perhaps they still continue to bury the extra costs, or perhaps they absorb them as the price of doing business. FedEx continues to provide account holders with free boxes and envelopes. Yes, this helps streamline the process, but it also delivers great value to their customers. Retailers like Abercrombie, GAP, Macy’s and Barnes & Noble still wrap (even gift wrap) your purchases in boxes and bags that both promote their stores and make life easier for their customers. Curves, the women’s health club chain, builds loyalty amongst their target audience by offering free babysitting while you work out.
Businesses that think long-term and work with their customers will continue to build loyalty and brand value while businesses who casually jump on the surcharge bandwagon face significant risk. Leading brand-centric businesses think long and hard about the real cost-to-value ratio of these decisions. It’s doubtful Nike will ever charge extra for the laces, Apple will sell iPods without earbuds or Starbucks will start charging for sugar.