Originally posted on Compass Consulting & Solutions – Paul Nottingham
In our last visit I mentioned I had just returned from Disney World and shared my appreciation for the service level we had experienced at one our Dinners. Shortly after our return to the real-world Disney World announced a new Fee that was never before charged and it was an increasing scale based upon where you stayed Value vs. Moderate vs. Deluxe. The new fee was for parking on site. Fees to park in many resort cities have been a long-established margin opportunity, and until recently one of the many advantages to staying “on Property” was free parking for guests. But that perk has gone the way of the “E” ticket books and Sunday nights “World of Color”.
Charging a fee for a service is a necessary part of doing business in order to stay profitable and viable in today’s highly competitive world of business. But perception of the root and reason for this additional fee can cause a major backlash from your customer base and be counter to your intended purpose. Let me illustrate:
Hotel room nightly rate: $325+ tax and resort fees
Includes free wi-fi, free parking, early admission to all parks on select days and free transportation between parks and resorts.
Verses:
Hotel room nightly rate: $300*+ tax and resort fees (overnight parking fees apply)
Includes free wi-fi, early park admission to all parks on select days and free transportation between parks and resorts.
Now this illustration is very simple and typical guests don’t really pay as much attention to the nightly rack rate as they do to all of the additional fees. But the example shows how human nature looks for the deal and for hidden fees that make many folks dwell on them as “Nickle and Diming” the consumer and diminish the perceived value of the offer. In my particular case, I rented a car and it was $180 for the 8 days we stayed in Florida. I felt like it was a pretty good deal for a resort city. But when I add the $25 per day to park the car overnight at the hotel we stayed in, the true cost of the Rental went from $180 to $380-($180 +$25X8 night stay=$380). This is a substantial increase in the per day cost of renting the car and at first glance seems to be a poor value for the money, right?? But If the resort raised the cost of the room from $300 to $325 per night it appears as an 8% increase in room rate and in my mind, I can justify it for additional wages, cost of linens, inflation etc. See what I did there- I balked at paying the Parking fee because it raised the cost of renting the car, but the increase in room rate was justified. I perceived the increase in rack rate as just a simple cost of doing business and it seemed minimal in its impact on my overall cost. But I balked at the parking “FEE”. Human nature causes most consumers to look at “Fees” with a jaundiced eye where as a slight (perceived) increase in base price seems to be easily justified or even accepted as the norm.
Think of it this way: You order a burger and fries with a drink at your local fast food joint. The bill is $7.50 and you pay it without hesitation. But let’s take that same meal but charge $6.50 and also add Oil Disposal fee of .50 cents and Market adjustment of .50 cents for tomato pricing in winter. How do you feel about the fees? If you are like me and most consumers you don’t like it. In fact, you are likely to engage the help in an argument about the actual cost of 2 slices of tomato or just eliminate the tomato and save me the fee of .50 cents. But including the fees in the menu cost without referencing them is accepted as a simple price increase and the world continues to turn normally without incident.
Think about this when you are pricing your services or products as those who are aware of human nature can keep customers happier, and happier customers mean repeat business and better word of mouth.