I was wondering the other day why Southwest would spend millions of dollars to remind people that Bags Fly Free. I’d argue there are two reasons:
- It generally supports their friendly and transparent, low fees brand strategy
- It reminds customers that a $500 fare on United might actually cost you more than a $550 on Southwest if you’ve got a few bags
Price have become so opaque over the past few decades that not only are consumers routinely surprised when they receive a bill, but companies now feel compelled to spend millions to remind them that quoted prices are often apples/oranges comparisons.
It’s not hard to find examples of price opacity:
- Mortgages with variable rate structures people don’t understand and which exposes them to massive increase in payments (i.e., the 2008 crisis).
- Bank accounts that have no monthly fee, but are laden with subtle and not-inexpensive fees that seem to silently sneak back in as terms are quietly changed.
- Numerous airline refundability tiers, change fee policies, per-seat premium economy seat fees, and baggage fees that make true price comparison next to impossible.
- Rental car policies like Hertz’s usurious $10/gallon refueling fee or the maze of overpriced and often unneeded insurance options that can double the price of a rental
- Teaser rates for many services, including cellular and Internet, that bear no resemblance to the actual monthly fees
Most, but not all, of the time I manage to sidestep these problems because I’m sophisticated and can figure them out (when I take the time), because I carry balances that preclude most of the sneaky banking fees, and because I fly a lot and get exempt from some of the change fees and seat fees.
But just the other day, while I was in the midst of congratulating myself for avoiding the Hertz $10/gallon refueling fee, I looked on the receipt and saw a per-mile fee that nearly doubled the cost of my rental — when was the last time a rental car didn’t have unlimited miles?
It’s a cat-and-mouse game and companies keep getting better at playing it.
Now you could argue that this opacity is a company’s way of fighting back against price competition, and particularly the price transparency and comparability that the Internet brought. In an era of price comparison engines that scour the Internet for the best deal, why not sneak in some fees that give you an edge?
You can argue, as people often do when it comes to the airlines, that we’ve done it to ourselves – our consumer behavior has trained the companies towards these strategies. And that may be true, but we need to accept that these strategies are often fundamentally dishonest.
I realized this as my kids got older and I had to explain how rental cars work (which I still don’t know that well apparently), how airfares work (self-insure against cancellation by throwing out a ticket every now and then as opposed to getting gouged on refundable fares – or just fly SouthWest), how credit cards work (that’s a long one), how mortgages work, and on and on.
It’s what in Texas they call a boiled frog problem. It’s happened so slowly and incrementally that we’ve just gotten accustomed to it and the people most hurt by the practices tend to be at the bottom of the socioeconomic ladder (e.g., payday loans) and have the least voice.
And this society of deception already extends well beyond consumer pricing. Contests and prizes are another huge area, like fake $1M TV show prizes (e.g., America’s Got Talent) that are actually a 40-year annuity worth more like $300K, fake unwinnable TV contests like American Ninja Warrior (which has only been completed twice) which are made harder every year so nobody wins the fake 40-year $1M annuity, or even state lotteries (which started the annuity deception) which typically pay out over 20 years, slashing prize values by about half.
But where we’ve ended up is not acceptable. Ironically, after the Internet brought a brief wave of price transparency, we have ended with potentially more opacity than we had before as fees and terms and packaging get ever more complex. We’re eroding consumer trust by living in an era of manufactured confusion and price deception.
You may not think this is a big deal, but I’d argue it’s like Malcom Gladwell’s broken window theory. If we tolerate constant small deceptions in our lives, we open the doors to the big ones.
Why shouldn’t this apply to enterprise software as well?
One of my favorite things to hate these days is “resort fees” — obligatory fees that are simply withheld from the quoted price of the hotel. Or parking fees for self-parking your car.
Ran into this again at a last minute booking I made through Hotwire (my favorite way to book some things). It was in the Anaheim area and, when I showed up, there was a $20 resort fee that was never mentioned. I’ve since complained to Hotwire.
Another great example of deliberate price opacity …
Google Trends shows a steady rise in “resort fee” since a brief lull after the FTC sent letters in 2012 expressing vague threats that they might feel uneasy. However, I’ve so far been able to get these fees removed if I complain.
Oh, and Dave, you forgot the $8 baked potato at the steak house, that nobody can recall ordering.
I can only see two forms of pressure which could reduce backdoor fees and other price opacity. Visible consumer feedback could discourage it, giving the sellers poor ratings and stating the reason. Or regulatory agencies could crack down. I don’t have much confidence that either of these will happen in the US.
Sadly, agree. Though, dare I say it, regulation would be nice particularly on the rental car and resort fees — if not the baked potato!
Super article. I’d argue that anyone that doesn’t dive into and understand something like a mortgage is foolhardy. But the nickel and dime stuff is designed to take advantage of the most vulnerable. When capitalism relies on deception, it’s hard to promote as the most efficient system.