How to price the grudge purchase

This article relates to problem of the grudge purchase: things like parking fees at shops, paid Wi-Fi access at hotels, credit card surcharges, banks fees and extra baggage charges for airflights. No customer likes to be lumped with these charges. In some cases being forced to pay for grudge purchases creates Detractors. Detractors are customers who are so disappointed, dismayed, distraught or displeased they go out of their way to actively warn other customers against your business. The main takeaway from this is grudge purchase costs are best hidden in the price of other things the customer is prepared to pay for. A secondary takeaway is companies should invest in differentiated extras customers may pay more for, especially if these extras are worth talking about.

How this article came about

I have to confess I started writing this article because I was feeling extorted by the airline Alitalia, and I wanted to ‘out’ them for revenge. As I have had time to reflect, I wanted to salvage something good from my recent poor CX with them. What happened to me may seem like a trivial 'first world problem', but if you have been in a similar situation you may have had similar feelings. In any event I am sure the basic elements of this story are sadly all too common.

My partner and I arrived at Rome airport to board a plane to Venice. From there we were on a shuttle to Campitello di Fassa to enjoy a week of skiing. Of course we had to cram in ski gear and other warm clothes, so our bags weighed either side of 26 kg each. Alitalia limits bags to 23 kg or an additional fee is charged. We didn’t know about the limit or the fee until we got to the check in counter because our trip had been booked by a travel agent. Singapore Airlines had been happy to take the bags from Brisbane to Singapore to Rome without additional charges (their limit is 30kg). It was different with Alitalia: Even though we were only a couple of kilos over weight and the flight was a mere 40 minutes long, they charges us an extra €120 (about $200). I am somewhat ashamed to say I lost my cool.

I find airports are stressful places, the check in queue was harrowing and this put me on edge. But the root cause of my loss of composure is I struggle to avoid going ‘into the grip’[i] when I feel I am being taken advantage of. At the time I actually felt unfairly extorted, which was an overreaction.

One reason I felt abused is from experiences working with a range of big companies over the last six years who said they wanted to improve their customer experience. Sadly what happened all too often was CX improvement was fine until someone’s bonus was at risk. Against this background I suspected the baggage limit and charges had been planned by some uncaring number cruncher who was gleefully rubbing hands together at the prospect of another bumper annual bonus at my expense. Even though most of this happened inside my head, it still made me feel stupid and powerless. So I took it personally and decided I wouldn’t accept the situation meekly.

When I complained to the check in staffer at the airport, I was told I should have read the fine print on the ticket or the Alitalia website. This caused my anger to escalate and the check in staffer quickly called in her supervisor, who probably decided I was a bully and set herself to teach me a lesson. She was quite gruff and basically said I had no rights in the situation, no choices and would pay the full fee or not fly. She didn’t care our previous carrier was happy to take 30kg bags, or how far we had come, how much we had already paid, how it was only a few kilos or how short the flight was. So I paid the fees, now virtually seething with anger. I felt I had been stitched up. In that moment, caught out by the system and treated without empathy by Alitalia staff I had become a detractor like so many other customers forced into grudge purchases. I needed to act: I wanted to throw a rock and smash a window in their smug little ivory tower. But my options were limited.

After the flight I sent a complaint via their website and got an email back which said Alitalia was entitled to charge me because of their fine print. It made me even angrier. It was like they were saying “we got you good and there is nothing you can do about it”. I have since sent two more responses to Alitalia’s customer service and the subsequent silence has been quite deafening. Really poor CX.

Analysing the result

When you think about it, this is a really bad result for Alitalia. Sure they got our ticket money and the overweight baggage charges, but we will never fly with them again. And they hardly get a ringing endorsement from this article, so perhaps this may influence you or someone else reading this to choose to fly with one of their competitors. If that happens they have cost themselves more than the extra for our overweight bags. Instead, what Alitalia wanted was for me to pay ￡120 more than the ticket cost and be happy about it.

And this is where customer centricity comes in and the number crunchers become a serious liability. In my opinion the management at Alitalia has made a fundamental strategic error because they have chosen to compete on price instead of by differentiating. The reasons for this are complex, but most of the time it is because managers are operating with too much short term focus or they are not thinking critically about the data they get from their management information systems. It is the same as the hotel charging for Wi-Fi and the shopping centre charging for parking. If you track only the revenue and profit from these things, then your people quickly get the idea to work out how to charge more, regardless of the flow on effects. But if you also ask customers about their likelihood to recommend or their happiness with your CX, you might come up with the exact opposite conclusion. In our experience EVERY business tracks revenue and profit, few balance these numbers critically against the effects on customer sentiment. Ideally profit and customer satisfaction are correlated, but many companies and employees try to game the system by focussing on profit at the expense of customer satisfaction and advocacy. The starting point is to identify what customers value and will pay for, and what else they just expect as part of their CX.

Baggage on a flight, Wi-Fi access in a hotel and parking at a shopping centre are all hygiene factors. As such they should be included in the price. When an organisation tries to stack on these charges as extras, it is because they want to avoid transparency about the full price of transacting with them. Their idea is to attract the customer into booking with the business because of a low advertised price and then charge extra for all the items listed under the *fine print. In Alitalia’s case, they can shave a few Euro off the list price of an airfare in the hope they will extract more than the difference back in extra baggage charges. The problem is the unexpected extra charges tend to upset customers. And it is certain Alitalia knows they are upsetting customers, but they persist with their strategy anyway.

In the long run this approach is a negative sum game, because competing on low initial price for the chance to charge extras prevents the potential for favourable word of mouth. Promotional costs increase to cover the lack of advocacy, but brand equity erodes anyway and volumes decline in turn. Without volume, the low initial price cannot be sustained and eventually the company may fail.

So what should Alitalia have done?

An alternative strategy which wins out in the long run has three components:

1.      Price hygiene factors into the base price and promote them as included at no extra charge.

2.      Create a differentiation some of your customers value enough to purchase as an extra.

3.      Create something unique about your offering customers find worth talking about.

In the case of Alitalia, there are other ways they could modify their overweight baggage policy to take advantage of the points I make above. If they weren’t prepared to abolish the charge, they could price overweight bags per kg, per flight segment distance which would be both fairer and more cost effective than a flat fee. They could have a door-to-door freight service for customers traveling with additional bags – something I just did for our bags for the next leg of our trip from my hotel in Campitello di Fassa to Barcelona using a company called parcelmonkey.com. A more remarkable option would have been to offer for one bag to travel on a later flight free (perhaps one with fewer passengers). This could ensure Alitalia could keep both its costs and our costs as low as possible. Alternatively they could have offered to deliver the delayed bag delivered to our next destination, for the price of an uber fare, saving a trip back to the airport for collection. This last service could even potentially attract a margin. Sadly Alitalia seems to be like many other firms who invest more in bean counting than developing valuable differentiations.

You can always find options that work for both the company and the customer (there are many more examples in my book on CX innovation coming out in around a month). Do you have a similar experience being stung by inflexible add on charges, or better yet, a story about a company that handles them well? I’d love to hear your story so please share in the comments.

[i] Check out ‘In the Grip: Understanding Type, Stress, and the Inferior Function’ (2000) by Naomi L. Quenk for more on the psychology of this. It is a short but interesting read.