Why do executives tend to support instituting fees that they know will annoy customers and yet oppose investments in training and other processes that will improve the customer experience?
Here’s a guess: Companies can begin assessing fees immediately and then add up the revenue generated at the end of the day. By contrast, any investment in training or other processes that will enhance the customer experience is difficult to measure and, even if it was quantifiable, takes too much time and effort.
The familiar path of least resistance is appealing. Assessing a surcharge requires much less work than improving the customer experience. Just a bit of coding on the website, updates to the point-of-sale system at the unit level, and inclusion of fine print where required by the legal department. It requires a lot less work than raising standards and improving the customer experience.
Many companies contend that raising standards, educating staff, and managing employees’ performance against these higher standards requires too much time and effort. “It’s way too hard,” they lament. “Who do you think we are? Zappos? Can’t we just assess the extra fees and count our money?”
This mentality is hardly surprising. After all, it works. The airline industry has succeeded at charging passengers for everything from baggage handling to pillows. And one airline, Ryanair in the UK, actually considered installing coin slots on its lavatory doors and charging passengers £1 (US$1.40) to use the toilet. Read about it here. The airlines have made nickel-and-diming customers an art form. It’s no wonder the airline industry is frequently cited when customers share their worst customer service experiences.
And now, hotels are being compared to airlines in the way they are trying to close budgeted revenue gaps by assessing a variety of fees. For instance, some hotels add a $2.50 “tray charge” to the automatic 18 percent gratuity included in the room service bill under the assumption that guests won’t mind paying $25 for a Club Sandwich.
Other hotels add a “restocking fee” of $2.95 per day, once a guest removes the first item from his minibar—as if he hasn’t already paid enough for that Toblerone chocolate bar. Additional fees include baggage holding fees, towel fees, in-room safe fees (sometimes appearing on the room bill as “Safe Warranty” fees), groundskeeping fees, resort fees, and others.
It appears as though the executives who authorize these fees have more faith in their company’s ability to close revenue gaps by adding fees that will annoy guests rather than providing exceptional customer service that will delight them.
Perhaps they’re skeptical about the research:
Claes Fornell, Professor of Business Administration at the University of Michigan’s Ross School of Business, oversees the data collection and analysis of the quarterly American Customer Satisfaction Index (ACSI) results. The ACSI reports scores for the causes and consequences of customer satisfaction and their relationships to financial performance and other metrics. According to Fornell, a 5 percent improvement in customer satisfaction leads to an increase of over 35 percent of future operational cash flow.
Another customer satisfaction authority, J.D. Power and Associates, looked at ancillary per day spending of hotel guests as correlated with overall satisfaction. They found that guests who rated their overall satisfaction with the hotel a 10 (or Very Satisfied on a 10 point scale) spent, on average $12 per day more on services such as room service, recreation, spas, mini-bars, and laundry service than guests who rated their overall satisfaction as an 8 or 9 (or Somewhat Satisfied on a 10 point scale). With an average length of stay of 2.5 nights, that can really add up.
In another study by consumer research firm PeopleMetrics, 1,250 customers were surveyed on their experiences at restaurants owned by nine publicly traded companies with 300 or more units. Customer engagement was measured by four factors: customer retention; the extra effort a customer was willing to make for a return visit; whether a customer would recommend the restaurant to a friend or family member; and passion—whether the customer “loved” the restaurant.
At the end of the study, the restaurants were divided into two groups: those with low customer engagement scores and those with high scores based on the survey results. When year-to-year financial data for the two groups were compared, the group with high customer engagement scores had an average increase of 29 percent in gross margin versus a 12 percent decline for those restaurants with low scores.
And just last month, American Express and Echo Research compiled research that revealed American consumers are willing to spend, on average, 9 percent more with companies that provide excellent customer service.
If the above research is even directionally accurate then it makes no sense to rely on added fees to generate revenue at the expense of customer satisfaction. Companies are much better off investing in training or other processes that will enhance the customer experience. Delighted customers really will pay more.
