Adding a Little Fat to the Bottom Line

At the conclusion of my most recent hotel stay, I nearly went into sticker shock when I got my bill. Not only was the nightly rate exorbitant for a plain old room in the major hotel chain (my colleagues and I chose it solely for its proximity to the town’s convention center), there were numerous add-on charges that made the total fee downright outrageous. “For that much,” I thought to myself, “I should have been slathered in luxury, not given teeny bars of soap and small, scratchy bath towels.”

On top of the base room rate were sales taxes, city taxes, occupancy taxes, business center charges and business center taxes. And that didn’t even include the whopping, sky-high phone charges. I was left gasping for air under the weight of all those fees.

An article in The Wall Street Journal (July 12, 2001) confirmed that travelers are being squeezed by these kinds of add-on charges. Bjorn Hanson, who heads up hospitality and leisure consulting at PricewaterhouseCoopers, told the Journal that slowing demand coupled with a growing supply of rooms have pushed hotels to charge extra fees for everything from the gym to telephone use.

That same WSJ article asked a very valid question about add-on charges: Is it better to spell them all out one by one on the bill (perhaps a soap charge next time, dear hotel chain)? This enables a marketer to keep base prices low. Or does it make more sense to bury these kinds of fees in the total product or service cost charged to consumers so that they aren’t hit in the face with each nasty extra charge. The downside here, of course, is that it’s a must to raise the total price charged.

In the catalog industry, shipping and handling (S&H) fees have long been a source of debate: Should they be used as a way to add a little fat to the skinny bottom line, or kept as low as possible to simply recoup the cataloger’s actual costs?

I asked consultant Lois Boyle, partner and chief creative officer forJ. Schmid & Associates, whether she knew of any tests of the different ways of dealing with the S&H charges. While she says she has no knowledge of any tests, Boyle notes: “The pros and cons for each often depend on the situation.”

Fruit catalog Cushman’s, for example, has a set fee for each box shipped. “This works very well for them,” says Boyle. “And the fee does not seem so high at $4.95 per box. If they had a total shipping fee, it might seem high to the customer.”

Another option that a few catalogers use, says Boyle, is to include the shipping charge in the total price. “They do this because every product has a different weight, and therefore, costs to ship [can] fluctuate. I think this is very dangerous, because the customer looks at the price and will automatically think it’s high. Most people only think about shipping fees after they’ve already made the commitment to buy.”