When Consumers Shop by Price, Headline Prices Will be Misleading

It arguably never has been terribly easy for a typical consumer to read and understand a telephone bill.  

As Verizon’s explanation of taxes, fees, surcharges, and other charges makes clear, it still is tough.

And without condoning the placement of operating charges “below the line,” allowing a lower headline price to be advertised, the practice probably is not unusual in any highly-competitive industry, where people shop “by price,” and when pricing is easily available online.

Shopped for an airline ticket recently? You know what I mean. Try reading your triple play provider’s bill, especially if you are a new customer that just signed up. Try and figure out whether everything fits with your understanding of what it was you decided to buy. It might be quite hard to figure out.

For those of you with family mobile service plans, who have shifted from device subsidies to installment plans, it is possible “headline prices” for recurring service are quite attractive, compared to your former bills.

As consumers, we tend to like that. But after building in installment fees for new devices, the differences will still be visible, but the savings might not match your expectations.

Still, that’s the point. Consumers have gotten used to getting “lower prices” when shopping for any number of items and products. So what is any competitor going to do if a significant competitor starts advertising prices that appear to be lower?

A rational competitor is going to match the prices, and might use the same tactics as the firm that moved first.

That isn’t to condone practices that essentially hide costs, at least until a consumer gets further into the buying process. But highly-competitive markets, where “lower price” is a key consumer desire, are susceptible to practices aimed at producing lower “headline prices.”

That’s why there are baggage fees, seat reservation charges, meal or drink fees, video entertainment or Wi-Fi access costs that are supplemental to a quoted airfare.

Suppliers are competing in markets where consumers look early for price, after ascertaining that a certain product meets buyer criteria.

If no key competitors adopt a particular practice, others will not have to do so. But once the attack has started, responses are required.

In an era of price transparency, price really matters. And that’s why pricing “add ons” is so attractive to suppliers. It allows them to stay competitive with market-level headline pricing.

Few buyers likely think that is a good outcome. But that is what happens when headline prices are highly transparent.