Living in a hidden-fee economy

The SF Chron writes about those little extras costs on various services that add up pretty dramatically, with some economics research on how we perceive and make decisions around fees.

“In the end, you don’t fool the customers with the hidden price,” he says. “They know they’ve paid it even if they didn’t know they were going to pay it.” And if they feel ripped off, they won’t come back. In the cell phone industry, he says, carriers lose 40 percent of their customers each year, a tremendous “churn” rate that industry players are starting to take note of. Sprint, Nalebuff points out, recently began pushing what it calls its “Fair and Flexible” plan, which adjusts customers’ calling plans to minimize overage charges. Sprint is betting, in other words, that customer loyalty is worth more, in the long run, than sneaky fees.

They consider the cost of ink in owning a printer, and hotel costs. The quote takes a customer-centric view of what will most effective, but consider the switching costs (in terms of time, aggravation, and sometimes money) for banks, credit card companies, telephone service providers, and internet service providers. Not to mention that some hidden-fee situations such as utilities or cable TV may be monopoly situations. Frankly, we get shafted by these firms because they can. Because it’s too hard to make the switch or there is no one to switch to. It’s not loyalty on our part, or tolerance for this sort of crap, indeed there may not be any place to go. Do you see CitiBank or Wells Fargo or Bank of America as having dramatically different fee policies (we could investigate and see, for our specific needs, what the advantage is, of course, but my point is that these companies are all playing these games, and if you start factoring in the research required, it’s just silly)? Of course not.

We live in a society of choice, but not ubiquitous simple cross-category choice. If Coke on the shelf is going to charge a hidden fee, and Pepsi on the same shelf isn’t, then after the first time, we might consider Pepsi differently (for those who aren’t powerfully loyal to a beverage). If one gas station has a hidden, and the one across the street doesn’t, sure. On a purchase-by-purchase basis, there can be lots of choice.

But for an ongoing relationship, who the hell can deal with making changes. Would you change your car insurance? Your house insurance? Your health insurance? Your calling plan? Your broadband provider? Not if you could help it, not unless driven to it.

I wish it was easier, and I appreciate the pro-consumer attitude the Chron quotes, but I just don’t think it’s realistic.


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