
The bitter taste of nickels and dimes - makimaki
http://sethgodin.typepad.com/seths_blog/2008/08/the-bitter-tast.html
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SwellJoe
Careful waiving fees and reducing costs for some customers and not others, as
you might have the reverse effect. i.e. rather than delighting one customer,
you piss off ten who see you giving special treatment to some random dude and
not them.

We still do it, but in a pretty orderly fashion...we have a reseller system
that provides pretty significantly lower prices to our customers that buy a
lot and provide the software to their customers rather than using it directly.
But it's a pretty predictable discount: Buy a lot, get it cheaper. We also,
behind the scenes, gave all of our early adopter beta customers a free year on
their licenses. Everybody. But we didn't talk about it a lot, because we knew
that wasn't the way it was always going to be...and didn't want people
thinking we just suddenly started charging _more_ and giving _less_. T-shirts
are also something that we give away a lot...but we give them to pretty much
_anyone_ who asks for one (when we have them). We don't even care if they're a
paying customer. If they like what we do enough to want to wear a T-shirt with
our logo on it, we want them to have one.

So, I dunno. Nickel and dime-ing has always seemed a little short-sighted to
me. I'm maybe more of a cheapskate than most folks, but it still seems
problematic. To put it in perspective, when I stay at a mid-range hotel, I'm
delighted when I find that a pretty good breakfast and parking is provided for
free...when I stay at a high end resort, I'm pretty seriously disappointed to
find that a maybe slightly better breakfast costs $45 and parking is only
available via valet and costs $25/day, plus tips. If I pay $150/night and
breakfast/parking is included...why if I pay $400/night, do I still have to
pay exorbitant prices for the other stuff? See, I'm cheap! But I'm not
complaining about things costing more...just that it feels like the mid-range
hotel is providing more service for less, while the high-end hotel is looking
to extract money from me every time I turn around. But, then again, the Ritz-
Carlton doesn't seem to be hurting, so maybe tacking on all those extra costs
works fine when wrapped up in the trappings of "luxury".

~~~
pchristensen
Because if you pay $400 for a room, then you _must_ have more money to
extract.

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DenisM
The name of the game is expectation management. It's best to exceed the
expectations than to fail them.

For example, Apple guides on 10 million iPhones sold this year. This is a
laughably low number as it represents less than 70% YoY growth, well below
typical 100% YoY in smratphone market. Add to that world-wide distribution
which wasn't there last year and which is not a part of 100% trend. You can
bet there will be headlines like "Apple roars, sold double the iphones it
expected" in a year from now in every single news paper. And Steve jobs will
be on stage saying "well,iPhone was pretty popular this year. In fact, twice
as much as we hoped - we can barely keep up production. Sorry about all the
lines. ;)"

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michael_dorfman
Another piece of "common sense" that seems all too rare.

It may seem like such an obvious point he is making, but it's definitely a
point worth making. Focusing on short-term return at the expense of the
customer relationship will never give good longterm results, and may not even
give good short-term results.

~~~
SwellJoe
Agreed. It's particularly surprising that the employee didn't waive the cost,
and raise hell up the chain about the policy. I thought Whole Foods was an
"empowered" workplace where employees made the decisions about what happens on
the floor. This seems like something they ought to have a say about, if they
are, in fact, able to make decisions about how the store where they work
operates. I'd certainly never be happy about charging someone $0.50 for ice to
go with a beverage they were already paying for...every independent coffee
shop I've ever been to will serve just about anything over ice if you ask (and
in Austin, on hot days, I found they often asked preemptively if I wanted it
iced).

~~~
radley
>I thought Whole Foods was an "empowered" workplace where employees made the
decisions about what happens on the floor.

Starbucks was like that initially too, but neither have been like that for
years.

~~~
stcredzero
I think Starbucks is trying to bring some of that back. I got a free coffee in
a Houston Starbucks a few weeks ago.

~~~
staunch
My experience as well. The Starbucks I go to often is constantly giving me
free drinks/snacks/extras.

~~~
gaius
Same here. Starbucks is a giant corporation, but each branch has the same
people in them from day to day, if you stop by the same branch on your way to
work every morning, then you'll soon be chatting to the staff.

I don't know the dynamic behind the free stuff tho'. It could be Starbucks
policy, it could be just the staff being nice to a familiar face who doesn't
just bark an order at them, or it could be them deliberately screwing their
employer. Probably all three at one point or other.

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delackner
The point to take away here is not that you should give preferential treatment
to frequent customers.

The point is that some customers do actually look at the price of 'extras' and
no one likes to feel they are being cheated. Charging an obviously huge markup
makes you seem dishonest and makes the customer feel cheated, rightly so.
Things that are obviously cheap in materials AND labor AND creativity should
be sold CHEAPLY or free.

Of course some businesses have found that their target customers are
completely price insensitive when it comes to the extras, and those customers
end up paying absurd margins as a result.

In an age when both the bottom end of the market and the stratospheric luxury
end are manufactured by neighboring (or even the same) factory in China, the
"value" of an item is finally almost completely disconnected from its cost.

I wonder what would happen if prices were required to include, instead of the
meaningless breakdown of price vs tax, price vs. cost (ignoring intagible
costs, since it is too hard to measure them meaningfully).

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Tichy
I have trouble understanding this? The price for ice was set to 50cent, why
should they give it away just because somebody asks? Maybe there is a reason
for the price (more manual labor, higher electricity bill, whatever)? If 50
cents matter to Seth, why shouldn't they matter to the food company?

What about flavorings for coffee, or extra milk foam, etc? Maybe these things
really don't cost anything, and the companies could give them away for free.
On the other hand, if they do cost something, I would be annoyed to pay 50cent
extra for a flatrate I don't need.

It just seems as if both models have their merits - maybe a flatrate shop and
a "sectioning" shop could exist next to each other and please different kinds
of customers.

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dangoldin
To play devil's advocate here, smaller shops tend to not have as many
customers so they can lose a few cents on every transaction. If every
Starbucks or big name hotel started giving these freebies, it would go into
the big bucks. I guess one can blame shareholders for that.

~~~
noonespecial
This implies that its a zero sum situation. The goodwill generated might
actually ( _probably_ ) lead to an _increase_ in sales overall despite the
small discounts per sale.

Big business seems positively blinded to this potential emergent behavior.
Sometimes I find it extremely comical how _giant_ companies with the resources
to hire a legion of economists will defy common sense in pursuit of a nickel
at the cost of a dollar, all the while dragging their reputation through the
mud.

~~~
froo
I think its a result of the difficulties in quantifying customer satisfaction
as opposed to simply trying to screw everyone with additional costs.

I think the economists views are that its all about ensuring that you meet or
exceed shareholder expectations, so they will take the approach of "its better
having a bird in the hand than 2 in the bush" when it comes to these matters.

Besides - when it comes to things like these, I think there is the vocal
minority that complains and says that they will never use that company again
(the majority of people do use them again anyway) and the majority of people
are simply complacent and accept it.

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pongle
I'm surprised no one has mentioned the "low-cost" airlines in this discussion.
For example Ryanair are still busy lowering fares, but reclaimming the extra
money from all the extras. I think they are doing reasonably well financially.
Then again I try not to use them because it's never a good experience...

Can you image check-in desk people waiving fees? (actually I can, sometime I
think they just ignore the weight of my bag :)

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anewaccountname
If it could be shown that Whole Foods waived fees X percent more for people of
race Y than of race Z, Whole Foods would be sued out of business. Much better
to just do away with charging for ice altogether.

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gunderson
Whole Foods jumped the shark when it started closing its raw juice bars.

Since then it's been one ham-handed move after the next.

