AT&T announced a new fee in their wireless data plans this week, and I think it is a good idea. All companies want to find the optimum prices for their products and services. The companies that are really good at it, try to set those prices at resistance levels – just below the level at which customers will switch suppliers or not buy at all. It is not easy to know where that resistance level is, so the strategic companies employ tools like value mapping, competitor alignment, and multi-part pricing – and they experiment. They test different price points and different price structures and measure their results. They can always adjust if they appear to be getting it wrong.
AT&T’s price change reminds me of other industries that have done similar things. For example, at one time, all airlines included food and checked bags in their ticket prices. Then the airlines slowly began to eliminate food in short flights, primarily to compete with Southwest who offered lower fares, but no food. At some point, one of the airlines realized they could eliminate food on all flights, and sell it to passengers. It was something different, but others followed. Delta was the first to try charging for checked bags. At first most other airlines marketed against it, saying they did not charge for baggage, but eventually all but Southwest followed suit. The prices that are shown on airline websites exclude the fees for food and baggage, but there are notes saying there will be a fee for checked bags. Is that really sneaking a fee past the consumers? Is this really any different than charging a handling fee for a ticket from Ticketmaster, or charging $9.00 for a beer at a stadium? Neither of those are part of the posted price, but they generate significant profit.
Other examples are hotels and car rental companies. There are all kinds of additional fees added to the bill, which were not part of the quoted price. One could argue that those additional fees cover real costs, but AT&T’s administrative fee does not. However, I would disagree with that. Hotels and car rental companies could have rolled their taxes into their overall cost structure, much like their electricity and water charges, but they correctly interpreted that consumers would object less to the separate fee. Although AT&T may not have a tax or government-imposed fee they are covering, they have costs which increase all the time. Much like the hotels, AT&T has just created a line-item fee instead of raising their base price.
I experienced one more example of this just today. I was purchasing something from an online retailer which offered free shipping on orders over $99. I included in my cart 3 items, all of which were on sale, and which brought the total over $99. However, 2 of the items were being shipped from separate vendors so at checkout I received a notice that there would be a surcharge for each of those items. I could have removed them from my cart and just bought the other item (and paid shipping on it). I thought about whether I was being deceived and whether I should cancel my purchase, but I decided to pay the surcharges. It was still worth it to me to avoid driving to a store. So, the retailer got me to look by posting low sale prices and free shipping, and then charged me a little more. I wasn’t angry. I might not have looked if the surcharge had been included in the posted prices. It was not quite as good a deal as I originally thought, but one I am still happy with.
In the case of AT&T, they are betting that customers will not defect over their separate fee. I think they are right. I have an AT&T data plan and I will not switch because of the fee. AT&T will learn soon enough how everyone else reacts, and I suspect they will adjust accordingly.
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