NOTA AICEX: siamo sinceri… Ogni volta che compriamo un biglietto per un concerto su un sito dedicato non possiamo non innervosirci per gli inutili balzelli che finisco per aumentare notevolmente il prezzo finale. TicketMaster è stata sottoposta a class action per commissioni ritenute inopportune. Come uscirne?
TicketMaster recently settled a pricing-related class action lawsuit that provides important pricing lessons to all businesses. In addition to paying for admission to an event, the ticketing giant used to tack on additional charges such as convenience, facility, order-processing, and delivery fees to purchases. The class action plaintiffs claimed these fees were misleading; had they known TicketMaster was making profit off the order-processing and delivery fees, the suit claimed, they might not have purchased.
As a pricing consultant who goes to a lot of concerts, I’m particularly interested in this litigation. When I read the lawsuit, my first thought was that it’s crazy. Why is it anyone’s business how a company’s profit is structured? Isn’t it the final price that matters—if you pay $25 to attend an event, does it really matter what individual fees (and the associated profit structure) that cumulatively make up the final price?
But then I thought about a purchase I recently didn’t make. I send engraved thank you cards to friends and business associates as an expression of my gratitude. Recently, I was pleased to see my favorite cards on sale for $19 (for a box of 10) on a leading ecommerce site. Ready to purchase, at checkout a $6 shipping fee popped up. “Six dollars to ship a box of cards?” I noted with a twinge of anger. I felt the e-tailer was taking advantage of me and as a result, I didn’t make the purchase. I later reflected on this experience and concluded that had the price been structured as $25 including shipping, or even $22 plus $3 shipping, I would have purchased. It was simply the $6 shipping fee – not the total price – that bothered me. All of a sudden, $25 wasn’t $25.
Understanding this consumer behavior, StubHub recently moved to an “all-in” pricing strategy. Market research by the eBay-owned ticket reseller revealed their buyers didn’t care for the mandatory additional fees that were tacked on at checkout. Previously, after agreeing to a ticket price, customers were hit with a delivery charge as well as a sketchy 10% “buyer fee.” While a delivery charge is reasonable and customary, this “buyer fee” seemed out of place (or at least could have been phrased better). For example, since StubHub provides excellent fraud insurance (if a resold ticket is fake, one call to StubHub will get you into the event no matter what), this charge would have been more consumer friendly had it been labeled a “buyer security fee.” Now Stubhub includes all fees in the initially viewed price. As a result of moving to this all-in pricing strategy, StubHub claims its customer satisfaction ratings have increased by 10 points and sales are growing.
Since $25 is indeed $25, why do individual component prices matter? To be clear, customers don’t always behave in an economically rational manner. After all, is 99 cents significantly cheaper than one dollar? Most consumers behave as if it is, which is why so many prices for consumer goods are set at a penny below a round dollar value.
The key lesson is that many customers evaluate prices sequentially. Each presented price in a transaction is judged for fairness. Thus, even if the total price is acceptable, a charge that is not customary or seems unusually high puts the entire transaction at risk.
Companies can use this understanding of sequential pricing decision-making to their advantage. To be clear, I don’t recommend including all of the customary charges into the initially presented price – as StubHub now does – for two reasons. First, this “all-in” price will likely be higher than the “first” price (before additional charges) of competitors, which can be disadvantageous. But more importantly, it’s the act of having customers review (and evaluate) these customary charges that is critical to boosting a company’s brand. For instance, if shipping is “free,” we all know that it is baked into the price. However if shipping is presented as a low-priced “pass through” cost to customers, many of us will code this as being fair.
I’m dubious on the merit of class action plaintiffs’ key claim – they might not have purchased had they known TicketMaster was earning profit from ancillary fees. After all, what’s next? Outlawing “free shipping” in favor of “shipping included?” Still, the lawsuit highlights how all companies can benefit from smarter sequential pricing. By strategically setting customary additional charges in a manner that engenders a sense of fairness, companies can enhance their brand.
AICEX Customer Experience Italian Association