Value brands have utilized base pricing with add-ons for years to attract customers who want products that get the job done without the frills. In particular, the airline industry has perfected this value proposition with products and services that serve travel needs without breaking the bank. However, customers trade low prices for restrictions and are often surprised by the hidden fees (sometimes called “junk” fees) associated with product or service charges.
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Introduction – Hidden Fees
Shoppers are weary of the barrage of new fees emerging across the entire retail industry. While these hidden fees have been around through small prints and asterisks, they are now more prominent in mainstream and luxury brands. These fees may not always be consented to in advance or customers have to pay them to continue using a previously purchased item. Details can often be slim on what these hidden fees are for.
Are Shoppers Weary Of Hidden Fees? (Image: cottonbro studio)
Americans are collectively spending nearly US$65 billion on hidden fees, according to the White House. “It’s beyond frustrating to end up spending more than you budgeted because of random, arbitrary fees,” said Federation Trade Commission (FTC) Chair Lina M. Khan. “No one has ever felt that a ‘convenience fee’ was convenient. Companies should compete to provide the best quality at the best price, not to see who can squeeze the most added expenses out of consumers. That’s especially true at a time when families are struggling with the effects of inflation.”
Hidden Fee Implications
Customers who encountered them always feel a sense of betrayal as they may have made a different purchase decision if they had known about these hidden fees. They often will voice their displeasure through direct customer feedback, online reviews, and testimonials. The resulting trust drain may lead customers to reduce or entirely stop purchasing products and services from the brand.
Hidden Fees Examples
Hidden fees can be separated into two types: 1. Functional and 2. Non-Functional or Non-Related. In both instances, reasons for some of the fees may be undisclosed in advance.
Functional hidden fees are for items that customers will need to pay for additionally to use specific features or functions. This payment is required on top of the initial purchase price. Here are some examples:
BMW – $18 monthly fee for use of seat heaters for select European models
Mercedes – $1,200 “acceleration increase” yearly fee to improve a vehicle’s speed
Ring – Just moved previously free security features behind a paywall – including watching a live feed of your video doorbell from the app
Best Buy – Moved purchase of gaming graphics cards to only customers with a $199 Best Buy Totaltech Membership
Target – Began charging a “bag fee” for curbside and e-commerce pick-up orders
TikTok – Developing a paywall feature to view influencer videos
Amazon – Now adding a delivery surcharge to grocery orders under $150, on top of Prime’s “free delivery” membership
Ticketmaster – The company charges various processing, venue, convenience, and administrative fees of 10-30% for all types of tickets
Non-functional hidden fees are for items that customers do not have to pay to use a product/service but are asked to do so sometimes overtly. At other times, customers paid these fees without knowing until later.
Petco – “charitable donation” request at checkout
Starbucks – Auto prompt for the tip on every mobile app order
Target – 2.5% “public improvement” fee in some stores (often landlord driven to pay for future site improvements)
Saint & Sophia – Online clothing shoppers are asked to “support the team” with tips on e-commerce orders
What’s Being Done On Hidden Fees?
The FTC formed a committee to tackle hidden fees back in October 2022. They are seeking public comments (more than 6,000 comments have been received thus far) on the following:
Unnecessary charges for worthless, free, or fake products or services: Consumers may be slammed with charges for products or services that cost companies nothing to provide, are available for free, or should be included as part of the purchase price. Companies might also upsell consumers on fake products or services that either have no value or never materialize.
Unavoidable charges imposed on captive consumers: Consumers may be forced to pay junk fees because they have no way to avoid or opt out of them. They might be dealing with a company with a monopoly or exclusive rights that can extract fees because there is no competing option. Or consumers might get hit with fees after they have already sunk costs into a product or service, and they can’t easily walk away.
Surprise charges that secretly push up the purchase price: Consumers can experience junk fee shock when companies unexpectedly tack on mystery charges they did not know about, consent to, or factor into the purchase. Companies might hide these fees in the fine print, cram them on at the end of a purchase process, or use digital dark patterns or other deception to collect on them. Some companies might claim that they do not charge any fees and then add on fees after the purchase or sign-up.
Alternative To Charging Hidden Feeds – Better Customer Experience
The customer journey is exhausting. Vast online choices, confusion on product options and quality, gauging review legitimacy, and deciding on pick up or delivery all contribute to shopper fatigue. But unexpected fees and tip requests only compound this fatigue, and make it harder for retailers to charge for the critical stuff like shipping, returns, or legitimate price increases.
It’s tempting for retailers to extend tipping to self-checkout or move product features into subscription models. Many retailers view this as a way to keep base prices low. But the negative impact on customer experience will be smaller basket size, reduced traffic, and waning profits in the long run.
Instead, retailers should consider lengthening the customer experience journey to cater to customers’ specific needs and expectations with choices. Building a better value proposition with the right product mix and partnerships can yield strong customer relationships leading to higher brand trust and extended revenue generation. While processing and administrative fees are unavoidable in some cases, brands should be transparent about them.
Additionally, brands are encouraged to disclose fees in advance to set or reset customers’ expectations. No one wants to feel lied to.
Example – Southwest Airlines
Dallas-based Southwest Airlines may be classified as a low-cost airline but it is very upfront for not charging for baggage, ticket changes, etc. Outside of the pandemic, they have scored well with travelers and achieved years of financial success.
Are Shoppers Weary Of Hidden Fees? // Southwest Airlines are upfront about their fees (Image: Southwest Airlines)
Example – TIME Magazine
TIME is dropping its paywall as of June 1, 2023, and will make all online content free.
The publication which just turned 100 in March 2023 currently has 1.3 million print and 250,000 digital subscribers.
It’s a bold move as print media companies continue to utilize paywalls to generate extra revenue on additional content while subscription fatigue sets in.
Time follows Quartz who noted higher content impressions once their paywall was removed.
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