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What Infuriating Airline Fees Can Teach You About Pricing

If you Google the words airline pricing crazy, you'll get 12.5 million results. That's because airline pricing is crazy. But I submit that it's not so much the charges themselves, it's the way they've marketed them.

Pricing is an intrinsic component of marketing, and the way you present it can be as important -- or more important -- than the numbers themselves. The airlines have alienated and infuriated customers, and generated nightmarish PR, because they've presented their fees as a laundry list of upcharges, with all of the nickel-and-diming that connotes.

They would be far better off tweaking their base fares to cover their needs, and then offering a menu of available "deductions": Not checking a bag? Deduct $15. Not selecting a premium seat? Fare goes down by $20... and so on. A starting fare that's $35 higher, with the option of reducing it by choice, is far less offensive than advertising what amounts to a possibly-unattainable lower fare, and then tacking on fee after ridiculous fee.

The net result is exactly the same, but the perception is completely different -- the consumer feels she has some control. Unfortunately for the airlines, it may be too late to put that genie back in the bottle, but the rest of us can learn from their mistakes.

If you think this is just a transparent or even deceptive tactic, it's not. It's done all the time, in any number of different ways, by companies in every industry. Companies virtually always build potential discounts into a price, except in cases of genuine volume efficiency or similar savings pass-alongs. But giving customers the ability to opt in or out simply makes the price structure more customer-focused and less objectionable.

I am not talking about artificially inflating prices simply to offer overblown, fake discounts -- like the mall jewelry store starting with insane markups just to be able to offer 80% off all diamond earrings. We all know what that's about. Pricing involves psychology -- no different than any other form of marketing. It's why offering a discount for buying more is clearly more sensible than imposing a penalty for buying less. It's all in the messaging.

So what can we as small business people take away from this? Here are a few pricing tips that will help make your customers feel as good as they can about handing over their cash.

Don't nickel and dime: Every customer knows that his money pays your bills; there's no need to remind them of this fact. We once worked with a firm that line-listed office supplies, mailing costs, and other "below the line" expenses on every invoice. We said, "We know we pay for your paper clips one way or another, but we don't need it shoved in our face."

Unless there is a real reason to (such as billable travel, changes to project scope, etc.), minimize the extent to which you list every little add-on. Aside from looking like small-change thinking, you might be sending the customer a signal that you lowballed a price only to pad it with extras after winning the business. If you know you use a million paper clips a year, factor that into your price calculations.

Give your customers savings opportunities that put the decision in their hands. And make the offers real, attainable, and ideally of mutual benefit: If cash flow is a priority, offer worthwhile early payment terms. If you're looking for upsell, of course you use quantity breaks. If you're trying to build customer loyalty, perhaps an incentive for coming back to you.

That said, price as your business requires, but don't go overboard just to make room for discounts: It is incumbent on you to make the margin your business needs to survive and grow, but if you take it too far (as in the jewelry store example) just to offer fake discounts, it might backfire. I am always a bit suspicious when a company has excessive discount latitude:

Tell you what, I can give you 20% off if you can order this week, then a 10% new customer discount, plus 7% courtesy discount and 10% early payment."
This tactic reveals that your published pricing is meaningless, and will make me wonder about every transaction in the future (if there is one).

If you think creatively, there are many ways to offer customer-friendly incentives that still serve your business needs. (Most) customers understand that you are in business to make money, but a customer who feels abused or annoyed by your policies is less likely to want to help you do so. Effective price marketing focuses on them, not you.

Please share your own pricing tips and experiences.

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(Image provided by Skooba Design)
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