Fees, Fees, and More Fees
While renting a car over the holidays, I was blatantly reminded of the power of pricing complementary "products". My shopping experience started at www.hotwire.com to find the best rate. Hotwire displayed a matrix of car rental companies, car sizes, and costs. I chose the full size car at Dollar at about $15 per day. A full sized car at Hertz was about $34 per day. Notice that I used the per day rate to make my selection and simply chose the lowest price since all of the brands seemed to be acceptable. When we picked up the rental car the guy at the counter asked the usual questions. "Would you like insurance? Would you like to prepay gas?" These are both upcharges (complementary products) that we're all very used to hearing. Then he asked, "How many drivers?" I said two. He said, "that will be an extra $10 per day for the second driver." (I changed my mind and said one.) Then he told us if we return the car early or late there will be a $15 penalty. We were joking with him about these new fees we had never heard of when he said, "Don't get a flat tire. That will cost you $300." The moral of the story. Your customers are likely using one thing to make a decision, but end up paying more after buying accessories, warranties, service plans and even fees. Notice in this example I used the simple per day rate to choose a car rental company. Obviously Dollar tacks on a lot of fees, and I still don't know if Hertz does the same. And that is the point. Customers do not compare prices of the add-ons. If you are competing on price, be aggressive with the price of the decision item. Be much less aggressive on the add-ons. Of course, don't go overboard. If your customers think you are taking advantage of them they will not be customers again. Mark Stiving, Ph.D. - Pricing Expert, Speaker, Author Photo by Tiger Girl
Looking for the latest in product and data science? Get our articles, webinars and podcasts.