When did it become common practice for companies to charge people to death at point-of-sale, after pulling them in with lower advertised prices?
In an age where transparency in pricing should be the norm, consumers are navigating a minefield of hidden fees on everything from concerts to movies to hotel stays. These “junk fees” cleverly disguised as service charges, resort fees or convenience fees have gotten out of control. As governments in Canada and the U.S. begin to scrutinize these practices, it’s time to dissect their impact on the consumer experience.
Let’s start with the resort fee at certain hotels. These used to be constrained to the most popular tourist destinations, but they’re spreading. They aren’t included in the headline room rates, but are mandatory.
I looked up a cheap night at the MGM Grand during a very low activity period and found a room rate of US$46. The resort fee? Added almost 85 per cent to the room rate at US$39 per day. Resort fees generally cover WiFi and gym access, even if you don’t need them.
If it’s mandatory, shouldn’t it just be included in the room rate? It certainly would remove a pain point in the customer experience. But unless every chain does it – or is forced to do so – they will take advantage of an increase in revenue from advertising a lower rate and adding on fees after the purchase intent has been made.
Some might call that false advertising; others might call it capitalism. I’m all for transparency in pricing, but there is a balance to be found between how you itemize costs and how the customer experiences them.
For example, after a lengthy spell away from North America, I was beside myself on a recent trip back at just how unpleasant it was to simply pay for things versus similar experiences in Britain. In London, if you go out for a meal, the prices on the menu already include tax, and a tip is automatically 12.5 per cent at most restaurants with table service. The amounts of tax and service charge are itemized, so you see what you are paying for.
While you could ask to have the tip removed (it’s listed as an “optional service charge”), I’ve yet to meet anyone who does that. There’s no deliberating on how much the tip should be, and no calculations to do. And with everyone tipping 12.5 per cent, I’d be curious if that leads to the same overall amount of tips collected compared with a system in which some tip nothing and some tip large. But overall, it’s a much more pleasant payment experience.
There is still the issue of tip distribution: It would be a much more pleasant experience knowing exactly how much of it goes to the staff as opposed to the owners. I’d love to see an item on the receipt with that information. After all, it’s in the name of transparency, right?
Another recent experience left my head spinning. I checked in exhausted at a hotel in Phoenix, Ariz. I decided to order room service. Instead of an in-room menu, there was a QR code that pulled up the list of offerings along with the ability to order. Brilliant: I don’t have to pick up the phone. Of course, it gave me the option of providing a “mobile tip” in advance of receiving the service. Nonetheless, I added one.
But upon getting the food delivered (in a paper bag), for some reason I still had to sign a paper receipt which included the itemized mobile tip but left space for another gratuity. I asked the staff if they receive the mobile tip, and they said they didn’t know. It left a bad taste in my mouth before I even ate the food.
It’s really not that complicated. If I’m looking to buy concert tickets, the first price I want to see is what I’m paying, plus tax. If you need to charge more for ticket delivery, a facility fee, a convenience fee, just put it in the headline price. When a company advertises a “total price,” that, plus sales tax, should be it, unless I want optional extras.
Junk fees coupled with self-serve kiosks asking for 20-per-cent tips are tactics that need to die. It can’t happen soon enough.
Preet Banerjee is a consultant to the wealth management industry with a focus on commercial applications of behavioural finance research.