Though sellers have good reasons for using hidden fees, customers generally dislike the, since total price is greater than top-line advertised price. Though annoying for buyers, there are reasons for such tactics.
In competitive markets where price comparison engines operate, price obviously is among the key differentiators. Where search engines rank products by price, it always makes sense to advertise the lowest-possible retail price, if competitors do so.
Mandating all-inclusive pricing by government edict is one way of improving transparency while not putting any single supplier at a disadvantage.
In the absence of such mandates, “below the line” price add-ons are simply a requirement for sales processes highly dependent on automated search mechanisms. Buyers may not like it, but so long as price comparison engines get used, lead price matters. Advertised prices always have mattered, but arguably matter more now that price comparisons made online are such an important part of consumer buying behavior.
In fact, such additional fees have represented as much as a quarter of total costs for some bundled-service packages in recent years (video plus internet access, for example). Equipment rental charges or other “cost recovery” fees often are included in total recurring prices.
One might think it irrational for firms to willingly compete on such a basis, but there is upside to balance price pressure downside: greater reach. Allowing price comparison engines to use retail pricing data does lead to price competition. But it also provides any single retailer greater prospect reach. As always, top competitors want to be available at retail where the top rivals also are present.
Of course, service providers often levy fees of various types, below the line, for precisely the same reason. We might disagree with the practice, or the reasons for the fees, but suppliers are responding to the implications of price increases in an era when price discovery is easier than ever. Add-on fees are an “easy” way to maintain to-line posted prices while actually increasing them.
When inflation exists, prices must be raised, since input prices climb. Consumers rarely claim to “like” their video providers or the many additional fees they see on their bills. But “broadcast TV” fees are a reflection of the rising prices video distributors must pay station owners for the right to carry their programing.
The same logic applies to sports programming costs that keep rising annually as well. Since 1983, for example, the cost to carry National Football League programming has increased at an eight percent compound annual growth rate. Subscription TV suppliers are distributors: they do not generally own the content they bundle for their customers. So when those costs rise, they must be passed on to customers, just as energy and transportation, storage or marketing costs must ultimately be passed on to customers.
Few--if any--businesses could survive eight-percent annual cost increases for an essential input to their retail products without adjusting prices.
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