I have three small children and like to get them interesting things to play with. Sometimes they ask “Where did you get this Daddy?”. For an easy life I’m almost always tell them “I found it on Google”.
There was a time when I didn’t buy everything from the web. As a boy I often spent Saturday afternoon on the phone calling every breaker’s yard in the county until I found the obscure car part my dad was looking for.
Now I do the same but it’s on Google and the outcome is pretty similar. Once I’ve found what I am looking for, I want it now. The longer I spent looking for it the more likely I’m going to buy it right now. Vendors know this: if whatever I want is widely available and in stock everywhere, make it as cheap as you can, otherwise find a way to raise your price. Go too high though and I’ll keep looking. Even if you’re the only source but the price is too high you I might just decide not to buy (I’m looking at you Logitech remote controls!).
This week I received two appeals for money that illustrated a different pricing dynamic I hadn’t noticed until now. One was for the Colorado wildfires, the other from a well known politician.
In the first case I donated $50 but at checkout there was a $5 charge tacked on. I was outraged: a 10% handling fee?? A quick read of the blurb revealed it was a suggested donation but 10% as starting point was so offensive to me I almost didn’t donate at all. I went ahead anyway but set the donation to 0% despite there being cheaper donation options. By now I just wasn’t feeling that charitable.
In the second case, I read the political email and thought ‘meh’. But they wanted less than $10 and I knew it wouldn’t take a second. So I clicked the link and somehow along the way I decided to give a bit more.
The politician vs the non-profit interaction made me realize this unintentional and adverse outcome may be happening more often than people realize.
For instance I travel a lot, I’m on the road two days out of three, yet I almost never stay in a hotel. They feel massively over priced to me, but that’s probably because I only stay in them when I have to, and that’s only when all my other options are exhausted because my destination is packed out. Of course the room is going to be expensive.
This is how hotels make money nowadays: sell rooms at a low price in quiet times to cover your costs and then make hay during conference or vacation season. The problem with this algorithm is it doesn’t take into account the other 200 nights each year I would have stayed at a hotel until I was trained to think of them as overpriced. Nowadays I don’t even bother checking hotels the rest of the time when I might consider them. I’d almost certainly be a customer if I could commit to buying 30 or 50 nights in a specific chain at a fixed price but as far as I know nobody offers me this and the hotel trade is $20,000 a year poorer as a result.
It is possible to get this right. I almost always rent my cars from Enterprise: they are efficient, friendly, cheap and most importantly they never leave me in the lurch (take note other rental companies!). And they have the upsell perfected. I’m usually offered an upgrade for just a few dollars more per day, and I usually take it. Virgin America does this with their first class upgrades. I’d never buy a first class ticket but an upgrade for $40 is a steal.
Competition for very qualified buyers – I must have it and right now! – is very high (some CPCs on Google after over $50) while developments in behavioral targeting and big data permits increasingly profitable interactions with less motivated shoppers.
So the motto of this story is that companies need to focus not just on margin but also making sure they are not scaring potential customers away in more subtle ways than we are used to when they do find ways to charge more. Caveat venditor.