To Fee or Not To Fee? That is the Question
A client recently asked me about adding a credit card fee
I didn’t have a strong opinion on the matter at the time, but it started me thinking and studying. I asked my LinkedIn colleagues what they thought. There was a clear consensus that fees are bad and customers hate them. However, that felt too easy.?
Airlines are profitable because of fees. Hotels have resort fees. Government agencies, educational institutions, and many other places use credit card fees. (Start watching for credit card fees as you shop, you might be surprised.)?
Yes, customers hate fees
My friend, Jon Manning, sent me a paper he wrote on the use of fees. I read even more opinions on the topic. Now, I have a much stronger opinion.?
Fees are OK if they are both optional and justifiable. Think of a fee as paying for a feature.?
Airlines started charging for checked luggage. That’s thought of as a fee, but it’s really just a payment for a service. If you don’t want to pay for it, don’t check your luggage. On the other hand, I despise hotel resort fees because they are not optional. You can’t get a room for the night without paying the resort fee.
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In the case of credit card fees, you are paying for the ability to pay with the credit card. That means, if my client wants to charge credit card fees, they should make the use of a credit card optional. They could offer direct ACH payments
A fee should also be justifiable. My client could explain by saying something like, “The cost of credit card processing is very high. We would be happy to continue at the same price point if you are willing to pay using Zelle, but we have to start charging to use a credit card.”?
The next time someone asks my opinion on fees, I now have an answer. Use them if they are optional and justifiable. Where do you stand on charging fees?
Share your comments below.
Now, go make an impact!
Thanks, Mark. Always insightful. Optional and justifiable - I agree. I'm from the airline industry where some carriers are more fee-oriented than others. Southwest, for example, is staking out a competitive position for "fewer fees." So, competitive response/positioning is important. Also, clear communication is critical - Spirit became more transparent only after a number of years of "hidden" fees. Customer behavior is also important; Spirit charges more for carryons even though checking bags is a more obvious cost - they wanted to limit carryons so that passengers would exit the planes more quickly. Justifiable but not necessarily obvious! Supposedly, banks are making a lot of money off overdraft fees - a clear cost but the actual cost may be a fraction of what they charge -- not so "justifiable" perhaps.
Chief Marketing & Customer Experience Officer | Business Leader | Communications Specialist | Pricing Professional
1 年Fascinating question, Mark Stiving, Ph.D.. I believe fees are vital. I have always used them to pass along costs that are outside the scope of product/service value. One example is a fee for expedited shipping. Another example is a fee for the exorbitant duty related to Brazilian customs. A third would be a broken pallet fee. This does not precisely meet your "optional and justifiable" criteria, but you are on to something. All three of my examples are justifiable and two are optional.
Director of Pricing Strategy | MBA, MA
1 年Thanks Mark Stiving, Ph.D. I agree with your views, particularly on these being optional. To this I would add a threshold. Transactions below, say, $10, have the fee IF using a cc. This helps maintain costing for the vendor while encouraging higher spend per transaction. Grateful to know your views on that.
Fractional Head of Pricing @ PricingProphets | Named one of 99 Pricing thought-leaders to follow on LinkedIn | Author of "Overcoming Floccinaucinihilipilification" | Start-up Mentor | Economist (Micro & Behavioural)
1 年Nice that that paper I wrote all those years ago is still useful.
Experienced educator, researcher, and product leader in financial services. 30+ years of experience assisting banks, credit unions and the vendors that serve them with relevant insights and technology services.
1 年Mark Stiving, Ph.D. do you agree with the CFPB's proposed rule that a credit card fee should be only $8? That is an existing fee and has an economic / risk model associated with it. I am interested to know your thoughts.