Externalize Surcharges in Partitioned Pricing

When I stay at the Eldorado Resort Casino, where University of Nevada-Reno houses me for my teaching commitments, the bill includes debits not just for the lodging itself, but also for a resort fee and a tourism surcharge. If when consulting with retailers in Boston, I’d chosen to rent a car from Hertz at the airport, I’d have been subject to an airport concession fee, energy surcharge, and convention center surcharge. Choosing a taxi wouldn’t excuse me from the extras, though. There’s still an airport surcharge and possibly a surcharge for a rush-hour ride.
     What are the best ways to present surcharges to shoppers? asked researchers at Pennsylvania State University, University of Groningen, and Iskander Business Partner. More pointedly, can services retailers employ a surcharge strategy to increase profit margins without incurring the full thrust of shopper fury often resulting from price increases?
     The research-based answer is yes:

• Minimize the number of separate surcharges. When there are multiple surcharges, the consumer becomes more likely to hold the retailer responsible regardless of the explanation for the surcharges. At the same time, findings from Adelphi University, University of Alabama-Huntsville, and University of Dayton indicate that the amount of any single surcharge should never exceed 20% of the base price. If a surcharge is a high percentage, consumers will consider the entire pricing structure unfair. That affects not only the current purchase, but also the potential for future business from that shopper. 
• Lead off with surcharges that draw attention to other providers. A “convention center fee” is better received than a “rush hour fee.” When it isn’t possible to present surcharges as the responsibility of others, it is best to present an all-inclusive price. 
• To the degree possible, state the reason for the surcharge in a way that highlights the benefit to the consumer. “Business center availability” can do this when “business services fee” doesn’t. 
• Avoid labeling the surcharge as temporary. When faced with a temporary surcharge, a shopper concludes they’re paying more than others will in the near future, this leads to feelings of unfairness, and the general negative tone makes blame of the retailer more likely. 
• Consider surcharges a form of partitioned pricing. Research finds that compared to bundled pricing, partitioned pricing increases purchase intentions with products and services that carry some financial or psychological risk for the shopper. Partitioned pricing makes less difference in purchase intentions for routine purchases. 

For your success: Retailer’s Edge: Boost Profits Using Shopper Psychology

Click below for more: 
Explain Price Ups & Downs to Customers
Use Partitioned Pricing to Highlight Benefits