Added Fees Reduce Sales - And a Customer’s Impression of Your Business
I had a massage yesterday.
During the off-season, I book at the Omni Mount Washington Resort in Bretton Woods, NH - a 30-minute drive from my house.
Most spa services include access to the facilities: steam room, sauna, beautiful lounges, and an outdoor hot tub with a view of Mount Washington. It’s a full experience - and one I look forward to.
Added Fee
At the grand entrance of the resort is a gatehouse that I don’t recall ever being in use.
But as I pulled in for my spa appointment, there was a line of cars stopped at the gatehouse. I noticed the driver of the first car handing a $10 bill to an attendant. And then I saw the sign: the resort is now charging for parking.
The resort has always charged for valet parking and access to their VIP lot, but I’ve never seen them charge beyond that.
It’s common for the general public to visit for a casual stroll through the hotel, and I can see how these visitors strain the parking lots during peak season. Therefore, it would make sense for these visitors to pay to park.
But the hotel is charging its own guests.
According to their website,
“24-hour valet parking is available for $35 per vehicle per day for guests staying at the Omni Mount Washington Resort & Spa only. Valet parking includes unlimited in-and-out privileges. Overnight self-parking is also available for $20 per day. Day guest valet parking is available for $25, or self-parking for $10. Complimentary parking available at nearby lot with shuttle service.”
I find this ridiculous.
I understand an urban hotel charging for parking. Space is limited and there’s plenty of public transportation available. In the White Mountains, however, there is virtually no public transportation; guests come by car.
To stay at the Mount Washington Resort, you need to be able to park a car. With no public lots nearby, you’re forced to either pay or make a U-turn at the gatehouse, park off-site, and be shuttled in, despite the on-site parking lots being large with the opportunity for expansion.
The effect of price anchoring
Staying at the Mount Washington Resort is pricey, and yes, guests who can afford to stay at the hotel can pay for parking, but that’s not the point. If you’re paying that much for a premium service, you expect the basic necessities to be included.
It harkens to price anchoring. When customers see an estimate or receive a bill, that’s the amount they expect to pay. Unexpected expenses, fees, and taxes add frustration, which is why many travelers are abandoning Airbnb for hotels.
The shipping & handling dilemma
Another example of price anchoring, shipping fees are often the top reason shoppers abandon carts.
Shoppers are willing to pay more for a product when shipping is included, further proving the theory of price anchoring. It’s why 79% of Amazon Prime subscribers pay for membership.
Additional fees tarnish the experience
Having to pay a fee you weren’t expecting is frustrating, and you don’t want your customers to feel nickel-and-dimed. This leads to dissatisfaction and increases the likelihood of complaints and customer service challenges.
Furthermore, fees can add an additional pain point: time.
At the Mount Washington Resort, it took several minutes to get through the line at the gatehouse. And this is the off-season! People hate waiting in line, and that loss of time compounded with an unexpected loss of money does not leave guests with a positive perception of their stay, and they haven’t even checked in!
How to optimize price anchoring
1. Avoid additional fees
A survey found that 37% of retailers who offered free shipping experienced a more than $7 increase in their order subtotal. Comparatively, free shipping orders led to an average of 15% to 20% higher order values than orders that charged for shipping.
But shipping is expensive, which is why many retailers opt to set a minimum cart amount to qualify for free shipping.
This method works too, with 80% of online shoppers being willing to meet that minimum — to an extent. The average minimum shoppers are willing to pay is $43 per order. Most retailers set their minimum at $64.
The exception: If a customer asks for additional services beyond your agreed-upon scope of work, charge. This is why it’s essential to have contracts and clear product descriptions.
2. List your highest tiered offer first
Especially if you’re a service provider, listing your highest-tier offer first makes your lower-tiered offers more appealing.
This strategy is based on context due to cognitive bias — how what you’re selling compares to the environment you’ve placed it in.
The first price is “anchored” in someone’s mind, so when they see anything less than that, they feel like they’re getting a deal.
Ex. On a sales page mentioning first that the offer is “a $399 value,” then revealing the actual price to be $249.
Ex. Showing a $10,000 watch product listing with a “similar to” product listing of a $2,000 watch.
3. If your offer has a variable rate, include a range
When clients see “prices start at ‘x’” that’s what they expect to pay - even if their project requires additional work.
Ex. When your website says “prices start at $1,399,” but you quote a project at $1,599.
Instead, include a range. This reduces the risk of clients experiencing sticker shock when you quote above your “prices start at” number.
Ex. “Most clients spend between $1,399 and $1,799.”
Make that second number higher than what you’d likely charge to take positive advantage of price anchoring.
4. Be strategic with sales
When promoting a sale, you want your clients/customers to think they’re getting a big discount. Follow The Rule of 100 to determine whether you should list your discount as a percentage or dollar amount off.
If the original price of your offer is under $100, use a percentage discount.
Ex. An item is $50. A 20% off sale sounds more enticing than $10 off, which is the equivalent of 20% off.
If the original price is over $100, use a dollar amount discount.
Ex. A service is $300. A $60 off sale sounds more enticing than 20%.
Price anchoring can work in your business’ favor or against it. Charging fees is one example of price anchoring working against it, and adds the potential of leaving your customers with a poor impression of your business.
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Hey there! I’m Meg:
LOVER OF CATS, ROLLER SKATING, AND VW BUGS
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