Variable pricing isn't going away, and it can help small and midsize companies cut costs and boost revenues. But the key to customer acceptance is using positive incentives instead of "punitive" fees.
Online billing has become quite popular, so much so that T-Mobile, the nation's fourth-largest wireless carrier, recently decided to start charging customers extra whenever they paid the old fashioned way.
Big mistake.
After a bevy of protests from subscribers and government regulators, the company was forced to pull back from its plans. But the experience provides small and midsize businesses with a few valuable lessons.
Don't Miss In InformationWeek: T-Mobile Won't Charge For Paper Bills
In August, the carrier sent its paper-bill customers a notice telling them that -- starting in September -- they would be charged $1.50 to process their payments. The carrier listed a number of reasons for the change: The cost of paper, printing, and postage was rising, and the company needed to offset them. Also, the service provider wanted to help reduce pollution, and sending bills electronically was more environmentally friendly than printing them.
Howls Of Criticism
The plan immediately was met with a howl of criticism. In fact, comments from irate customers fill more than 60 pages on one consumer affairs Web site . That wasn't all. Regulators in several states objected and began busily searching for ways to stop it.
Some of the critics saw the plan as an attempt to pick customers' pockets. They thought that consumers who were paying their bills online should receive a credit rather than having those who don't pay a penalty. Others pointed out that many people individuals, primarily the elderly or those with lower incomes or living in impoverished rural areas, have not joined the Internet age. Many Americans still do not own a computer and even more lack Internet access.
T-Mobile's response?
Those unfortunate folks could always use a kiosk in a T-Mobile store or check out the company's Web site at a local library, right?
Wrong.
Not surprisingly, such seemingly callous responses only fanned the flames of discontent. The protests quickly became so loud that the carrier scrapped its plans before the first penalties were scheduled to go into effect in the middle of September. In essence, T-Mobile spent a lot of time and energy on a change that ended up going nowhere.
Variable Pricing Not Going Away
Small and midsize businesses can take a few lessons from the carrier's tribulations. First, even this failed attempt underscores the widespread and ever-growing acceptance of networking technology. Online bill paying has become so common that a big, mainstream company like T-Mobile felt comfortable trying to prod traditional bill payers to join the Information Age.
Most businesses now exchange billing data electronically, and it seems like sooner or later it will become commonplace among consumers. In fact, there are few instances where paper penalties, such as those proposed by T-Mobile's, have been successfully implemented. For instance, national trash hauler Waste Management charges its customers $2 to process paper bills. Of course, the environmental argument may be easier to pitch Waste Management than T-Mobile.
Positive Presentation Is Key
In any case, there's a larger question at work here, too. There are many business situations where providing services to one customer costs more than doing the same for another. And many companies follow practices similar to T-Mobile's failed proposal and charge customers different rates depending on their payment methods. For instance, some gas stations and other retailers charge less for a cash payment than for a credit card transaction. In most cases, they have been able to do this without incurring negative publicity.
One problem could be that T-Mobile's goals seemed completely self centered. The benefits to the vendor of moving users to online billing are fairly clear: faster processing, reduced labor costs, and more efficient business processes.
But T-Mobile offered only negative enticement -- charging fees to customers who don't make the move. Not surprisingly, that created a backlash. Perhaps if T-Mobile had offered its customers positive incentives to change, the company might have made friends instead of enemies.
Ultimately, the trend toward variable pricing is probably unstoppable. And there doesn't have to be anything wrong or off-putting in the practice.
But if your small to midsize business wants to institute variable prices based on billing procedures -- or on anything else -- you'd be well served to heed the example of T-Mobile's failure: Make sure the differences are presented as discounts, not fees. And try to highlight the benefits for customers, not just for your company. Finally, be sensitive to the needs of customers -- especially consumers -- who may have trouble doing business the way you want them to.
See more columns by Paul Korzeniowski.
Paul Korzeniowski is a Sudbury, Mass.-based freelance writer who has been writing about networking issues for two decades. His work has appeared in Business 2.0, Entrepreneur, Investor's Business Daily, Newsweek, and InformationWeek.
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