Monday, June 16, 2008

Nickel and Diming

During my early business life I was always struck by the fact that “expensive” hotels charged extra for everything, local calls, internet, movies, newspapers, breakfast, etc.; at the same time, more affordable hotels included everything. Although these less pricey hotels did not have marble foyers or linen tables, they did offer things that a very young, weary, traveler wanted: a clean room, safe & quiet environment, and some perks.

For the exorbitant prices you paid at the high-end hotels, everything should have been included. What they should have done is given rebates back for things you did not use instead of nickel and diming us to death.

I read an article in INC Magazine about a judge who was invited to a very expensive restaurant in the Washington, D.C. area. Even though it was a long drive, the ambiance was top notch, the food excellent, and the service superb. Still there was something that ruined the whole experience: He was charged $1 for ice in his $7 mixed drink. It was not the fact that the meal was about $75 per plate, but the fact that he was nickeled and dimed for the extra dollar (instead of just charging $8) infuriated him so much that instead of talking about how wonderful everything was at the restaurant, he only talked about the $1! Needless to say, he never went back to that restaurant.

I see the same thing starting to happen in the airline industry. American Airlines is charging $15 per bag, $3.5 for snacks, and $7 for meals. Incredibly, sodas and water are still free. What American should do is just charge a higher fare and rebate you for what you do not want or use. (Please read my earlier blog about Freedom and Choice). This will put the power of purchase in the hands of the consumer, and you may be surprised that more people than you know are willing to pay extra for extra services. I know for a fact that the purchase rate on a plane is under 2%. Just image what great things could happen is you just trust your customers to do the right thing?

Anyway, what this has done to me is make me look at Southwest and JetBlue. I have always preferred American, but with this nickel and diming, I think the differentiation that American once had is now only a memory.

So remember, do not nickel and dime. Instead, charge what you think your service or product is worth, and then if possible unbundled it. By unbundling, you take out features or services in EXCHANGE for a reduction of price. It becomes a win-win for you and you customers by sharing the purchasing decision, and giving more freedom and choice to your perspective purchaser.

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