What other fees can airlines charge?

Bitten by rising fuel costs and a weak economy, airlines are struggling. Naturally, they have turned to their creative pricing departments to design new fees. These fees include checking bags, water, and the extra leg room in exit row seats. Where can they go next? Here are a couple of ideas: the ultimate in usage fees and the ultimate in carry-on fees (in serious and profanity-laden form).

While it's easy to poke fun at some of these ideas, there is obviously a strong economic motivation for them. Online travel sites make price comparisons really easy. Many airlines would rather present a low initial price and then tack on fees under certain conditions than risk losing the sale to a competitor offering a lower starting price.

Significantly, Southwest, which opts out of travel sites like Expedia, does not charge a long list of fees, and they have made that the centerpiece of their pitch.

There are certainly other areas that would permit further price discrimination. Sure, for $3 you can get a crummy snack, but for $10 we'll give you something good. An attractive beverage cart, designed with utility and merchandising in mind, would likely increase the profitable sales of alcoholic beverages significantly. Why not let partners wheel a cart with rent-able DVD players through the boarding area? Sure, many airports have stores that offer this service, but that requires so much forethought and walking for something that is often an impulse buy.

I have never been able to figure out why airports insist on separating retail, which is something corporate America does brilliantly, from the departure "lounges", which are a cross between a penitentiary and a dentist's waiting area.

The word penitentiary leads me to what I really wanted to talk about. The good news for airlines is that they are no longer their own worst enemy. The bad news is that they achieved this status not by improving the customer experience, but by allowing an entity with even lower customer service standards to get between them and the customer. This is the TSA. "Going through security" adds long delays and unpleasantness to the whole flight experience, without really doing anything meaningful about "security." For people who don't actually fly who think I'm just being cranky, see noted security expert Bruce Schneier on TSA Follies.

(Humorous aside: my personal TSA favorites:

• An entire security team at one line-- 4 agents-- needed to meet to discuss the amount of baby food we were trying to bring on board. After a little back and forth, they decided graciously that since we were dealing with 2 babies and had a 2 leg flight, that we were probably not terrorists.
  
• The time I accidentally took a Swiss army knife with a 3 inch locking blade through security, had my bag searched by hand, and was cleared to go.)

No one cares more about airline security than the airlines. Why can't they help the government design a meaningful, less unpleasant process? And let anyone through security, as long as they pass through security. So if you want to wait for someone, you can do it "inside". This will help struggling airline retailers. I could go on about redesigning the terminal experience but that would take time and money, along with significant construction. Redesigning the security experieince could improve both the customer experience and the end result.

Wholesale Prices Make Biggest Jump in 27 Years

The US Producer Price Index rose 9.8% for finished goods for the 12 month period ending in July, the largest jump in 27 years. Businesses are stuck between the rock of rising costs and the hard place of weakening spending. Passing along price increases could further dampen demand, while not passing along price increases could put you out of business.

Surging energy costs fueled the increases (what a terrible and unintentional pun, but once it was there I couldn't take it out). Some of the companies we work with are facing double-digit cost increases in their supply chains, sometimes more than once per year.

What can you do?

Start by understanding what your customers truly value. Often, customers in different segments value different things. Some might love your products, while others place a premium on your responsive service. You can price more competitively on your product offering by unbundling the premium service that you may have thrown in for free.

Quantify your benefits for customers. If you sell a product at a premium price, even double the competition's, you might still be a bargain if your product is a small part of overall costs, but has a big impact on how efficiently other investments perform. For example, a machine on a factory floor that offers less downtime is extremely valuable. If you don't do anything better than the competition (include service, support, and other aspects of the overall customer experience) you have to compete on price. Or figure out how you can do something better.

Many companies lack the process, tools, and data to do this effectively. Now might be a good time to think about how to put those in place.

As a political aside, I need to insert a rant here: a lot of inflation comes not from stuff getting more expensive, but from the dollar getting cheaper. Over the past few decades, no one has had access to cheaper credit than Uncle Sam. Unfortunately, Uncle Sam is less trustworthy with credit than a giddy real estate speculator during the condo craze. Despite all the (hot) air time devoted to inane non-issues in the current presidential campaign, no one seems to be pressing for a meaningful discussion of the economy, the dollar, and our credit system. While many in the media noted that the Federal Reserve is now suddenly very concerned about inflation, no one wants to talk about the elephants in the room--massive growth in government spending, mainly on discretionary wars, the military-industrial complex, and entitlement programs designed primarily to benefit corporate donors, and the regressive nature of inflation.

How do you know your contract terms are unreasonable?

Tim Cummins, president of International Association for Contract and Commercial Management, recently wrote a post on his Commitment Matters blog about how courts had thrown out contracts related to software and cell phone contracts. While the court rulings, should they stand, may impact various niches of contract law, we might want to follow Tim's advice and not put unreasonable clauses in our contracts. I asked how companies can know in advance, without waiting for a court ruling, and Tim posted a thoughtful response.

Here's another tip-- talk to your sales people. If your sales people are selling around, under, or through your contract terms because they think the contract is unreasonable, you have a problem. We recently worked with a company whose sales force actively encouraged customers to sign on to contracts whose terms they didn't really meet, along with advice on getting out of the terms. In addition to creating suboptimal outcomes for the company and customers on contracts, the issue clouded the value proposition for customers who should be on the contract and interfered with the ability to develop new offerings that would better address the customers who shouldn't have been on the contracts. Getting out of this mess takes time, but at least they're on their way.

I Am Rich-- No More

We've had other discussions about how for some luxury goods, the exorbitant price is part of the value (see $300,000 watches that only tell you whether it's day or night).

Meanwhile, as some of you may have heard, Apple launched a new iPhone, along with the AppStore, which allows iPhone owners to install applications, much like you can buy music through iTunes. Prices for most apps range from free to $9.99 (see this post from Pinch Media with price distribution).

Bringing these two storylines together, someone wrote an iPhone application called I Am Rich, which simply displayed a ruby-like gem. The software cost $999.99, the highest price point that Apple currently permits in the AppStore. According the author, the I Am Rich application "always reminds you (and others when you show it to them) that you were rich enough to afford this." Nothing like a little humor.

It turns out that Apple does not find this amusing, and removed the application from the AppStore. ZD Net writer Jason O'Grady thinks the cause may be angry customers who did not really mean to buy the application.

Tricking someone into buying something they did not mean to purchase is not good, on a number of levels. (Reminds me of the Dilbert cartoon where the team discusses charging a million dollars with a $999,999 rebate. "We only need one person to forget to send in their rebate form.") At the same time, conspicuous consumption is a pretty big driver of the economy. Anyone know how many people actually bought "I Am Rich"?

Edit: Apparently, 8 people bought it. That means about $5,600 for the developer, after Apple takes a 30% take. My guess is that's a lot more money than most of the $1.99 apps have made.