Manufacturers Beware

Interesting information about fees and or surcharges

New research conducted by Amar Cheema, Ph.D., assistant professor of marketing at Washington University in St. Louis, provides some interesting insights about consumers' perceptions of surcharges.

• Consumers pay more attention to surcharges than what was previously thought
• How consumers think about and respond to surcharges depends, in large part, on the seller's reputation
• When buyers don't trust the seller — they are vigilant of such tactics. In many such cases, his research concludes, buyers will decide against making a purchase
• Participants took longer to make a decision when buying from low-reputation sellers than when buying from high-reputation sellers
• Sellers who divide the total price of a product or service into a base price and a surcharge could prosper when buyers ignore the surcharge
• Surcharges levied by low-reputation companies lower purchase likelihood. Thus, low-reputation companies may benefit more by offering a consolidated price
• High-reputation sellers can post higher surcharges to increase the total price paid by the buyer, but low-reputation sellers cannot do so effectively
• Low-reputation sellers can benefit by absorbing the surcharge into the base price and offering a consolidated price for a product or service

The research, holds interesting implications for businesses and their pricing practices, and looked at pricing data of online sellers, catalogs and service providers.

The paper is available at http://www.olin.wustl.edu/faculty/Cheema/CircSurchargeReputation.pdf