Every January, I go to the Consumer Electronics Show (CES) in Las Vegas. CES is a cavalcade of “what’s next” in consumer electronics, from televisions to smart refrigerators. And robots. Lots of robots. Some of which are really creepy.
With how expensive hotels tend to be during this event, I book months in advance to secure a still unreasonable but not eyeball-gouging rate. But this year was different. To my surprise, a $54 resort fee was added to my bill upon checkout, thus adding a total of about 20 percent to the cost of my stay. Inquiring to the hotel, I was told that the fee was “mandatory” and that it covered such generous amenities as water bottles, a chocolate bar and an airport shuttle that is “currently down because we are short staffed. So sorry.” Fed up, I vowed to never stay at that hotel again.
I am not alone in feeling cheated. According to a survey conducted by Atmosphere Research, 91 percent of customers think resort fees are egregious, and many customers feel that they are not disclosed adequately during the booking process. In Las Vegas, where some hotels average $25 a night during low season, a resort fee of $50 can double the cost of the room. Naturally, the Attorney Generals of both Nebraska and the District of Columbia are suing Marriott and Hilton for unfair and deceptive practices.
And yet, it doesn’t need to be this way. Transparency in product pricing and offerings can make or break a business. According to the Journal of the Academy of Marketing Science, customers are more likely to purchase an expensive product and even repeatedly patronize a business if they feel the complete price of a product has been adequately and fully disclosed. In order to ensure a loyal customer and not have pricing issues get in the way of success, entrepreneurs should seek to disclose pricing as clearly as possible (even if it means losing possible business), justify any price increases with a concise fact base and even introduce dynamic pricing options. Let’s break that down step by step.
At my hotel stay during CES, the resort fee was not clearly and transparently disclosed during the booking process. In fact, it was hidden. This contributed to sticker shock, or the feeling a customer gets when the price for a product is radically different than as earlier quoted or expected. Sticker shock can be extraordinarily damaging to a business, so you’re better off disclosing the entire value and price of the product before purchase. Make sure a customer clearly understands what that price encompasses, including any ancillary or secondary fees that may occur. And while some entrepreneurs may shy away from full disclosure out of fear of losing business, an angry customer with a complaint always costs more time and money in the long run. The opportunity cost is not worth it.
Justify Price Increases
A few years ago, I was dining at Union Square Cafe in New York when, again, I was shocked at my bill. Instead of arriving with the opportunity to tip my waitress, the pricing of each item was higher in order to pay employees a living wage. And yet, the bill also came with a message from the founder and owner of Union Square Café, Danny Meyer, stating why gratuity was automatically included, where the money will go, when it was enacted and how any customer can contact the restaurant to discuss their opinion on the matter. Contrast this with my experience at another restaurant in Los Angeles that just added the tip automatically and justified it by effectively saying, “It’s good for everyone.”
If you are going to materially increase the price of your product, follow in the footsteps of Danny Meyer and state, in detail, why you are increasing the price, where the proceeds will go, when it comes (or came) into effect and how the customer can reach out if they have any comments or concerns. A good example of a company that does this is TargetCW, which provides contingent workforce solutions but breaks down pricing by line item so it is more transparent before customers make a purchase decision.
The overwhelming majority of customers want to see businesses they love be successful, and by offering clear and concise facts on pricing, you are making them ostensible partners in your business and future success.
Introduce Dynamic Pricing Options
Earlier this year, Disney World introduced dynamic ticket pricing options for admission to its theme parks. Dynamic pricing is a consumer cost model that adjusts to the supply and demand curves of the market at any given time without having a set flat rate. So for example, if you visit Disney World on Christmas Eve, expect to pay more than if you visit on a rainy day in October during the off-season. Disney justified the change by saying that the increased demand in busy seasons, coupled with resource strains, meant that they needed to put a premium on pricing.
Disney is not alone in introducing dynamic product pricing, the most notable, and controversial, being Uber. But if entrepreneurs are to introduce a dynamic pricing model, they must ensure that the terms of the price, the reason behind any increases and the time it lasts are clearly and legibly disclosed to consumers before the purchase is made. Consumers must be given the option of paying more for a product they want at a specific time period or waiting for the price to drop when demand may be lower. The goal is to shift the decision on price to the consumer rather than having the business arbitrarily set or increase prices themselves.
If there is anything that the resort-fee debacle teaches us, it’s that honesty and transparency in customer service is one of the most important assets to building a successful business. And when it comes to price, entrepreneurs should aim for transparent and clear disclosure, provide concise facts and introduce dynamic pricing to shift the responsibility for making a decision over to the customer. Hopefully, they’ll become customers for life.
Jumpstart Your Business. Entrepreneur Insider is your all-access pass to the skills, experts, and network you need to get your business off the ground—or take it to the next level.