Revenues Gained by Service Fees Undermines Relationship Marketing Goals

“A fee is simply defined as a ‘charge for service.’ Its synonyms include basic accounting terms like ‘cost’ and ‘payment.’ So why has such an innocuous word stirred up so much frustration and anger among consumers in recent years, particularly when they are dealing with industries like airlines and financial services.”

This is the first paragraph of an article published in the April 13, 2011, issue of Knowledge @ Wharton, a FREE on-line weekly update from the Wharton School at the University of Pennsylvania. The headline of the article is: “Nickeled and Dimed: Is It Possible to ‘Over-fee’ Consumers?”

This most-interesting article goes on to show that irritating fees are going a long way to undermining marketers’ hope for establishing relationships with consumers and creating “customers for life.” The article points out that, for example, two-thirds of travelers are hit with a surprise fee after arriving at the airport, according to a survey from the Consumer Travel Alliance. More revealing is the statistic that banks, in 2009, earned $37 billion in overdraft fees.

The latter finding is most interesting since writing bad checks is a crime. So by earning $37 billion a year from criminal activity, what does that say about banks being accessories to the crime.

Fees can be warranted if they provide some kind of value added benefit. Peter Feder, a Wharton Professor, says: “Companies need to find that just-right balance where they can charge fees but their customers are well aware of (this) and everyone can live with it. Otherwise, they’re shooting themselves in the foot for nickels and dimes.”

It is particularly frustrating when one airline — like Southwest — makes marketing hay by telling customers that “bags fly free” while its competition charges $10 to $20 per bag each way. Southwest also offers customers the opportunity to take an earlier or later flight from the same airport to the same destination without charging fees while American Airlines, currently in bankruptcy, will tack on $150 if you simply want to get on a flight that leaves an hour earlier or later.

Charging fees — and they are high fees — when you are late on a credit card payment of temporarily exceed your credit limit is yet another irritating reality. Why not reward the customer for paying his/her bill on time or staying within his/her credit limit. Shouldn’t the ax swing both ways.

Wharton Marketing Prof. Jonah Berger (no relation) says that despite what consumer believe , companies are aiming for fees that will be considered reasonable. Berger points out that when an airline charges a passenger $5 for a sandwich on a short domestic flight that seems reasonable. However, he adds that if the airline starts charging for basic beverages on international flights, where customers have no other options, that seems unfair and may provoke outrage. “Consumer perception of fees is less about money and more about fairness,” Berger says.

He goes further to say that what is fair is often determined on how the company charging the fee can spin it. He hypothesizes that if a airlines can say that charging baggage fees makes tickets cheaper for customers who have no luggage, maybe they can convince people that the fees are reasonable.

The big picture in marketing today is that we have highly sophisticated customers who have vast quantities of information at their fingertips. You don’t fool smart customers by spinning falsehoods. Customers are willing to embrace a provider and become a customer for life if they are treated in a fair and reasonable manner. When customers start thinking they are being “ripped off,” they will simply move to the competition.

Those companies that think they are making more profits by burdening their customers with irritating and unnecessary fees are simply fooling themselves.