The financial incentive for providing bad service

Colonel Tom Parker: How Much Does It Cost If It's Free

He was a crank, but he was right

Hard-core capitalists and campaigning Republicans love to tell us that the free market does for America what is best. Given time and the protection of a velvet rope, competition will mollify inadequacy and the blessings will trickle down upon us all.

It’s bullshit, of course. That’s not the way it works in America anymore. Anyone who has been to a movie in the past 15 years — and sat through 10 minutes of unwelcome TV-style commercials before the show — will tell you that the movie-going experience was better before we had to do that, and that ticket prices did not come down as a result. The product got worse.

The truth is competition will not equalize squat if a business can do one thing: lower the expectations of the consumer. Because all the cinemas across the country shoehorned commercials into the bill at the same time — just as the cell phone providers are capping speeds together and the airlines implemented baggage fees together — consumer expectations were suppressed.

Once you’ve got the expectations low, you can do a few things to make sure your competition can’t end-run you now that you have cheapened things. One is to snag exclusivity with another big partner. But that can backfire. Everyone knows that if AT&T, which diligently bricks some 36 million bricked smartphones nationwide, didn’t have the benefit of years of exclusivity for the iPhone, it would have hemorrhaged customers.

Exclusivity can be expensive, too, since it dings your potential market. After all, if Pepperidge Farm licenses the recipe to the intergalactically awesome Australian cookie Tim Tam , but it only sells them through Target and refers all customers to Target to buy them, then everyone in Manhattan, where there is no Target, will suffer without Tim Tams. This makes bearded travel writers extraordinarily testy, so as you can see, exclusivity can backfire on you.

But there is a second, more lucrative thing you can do once you have subtly gotten Americans to accept your downsized, diminished, flimsified product. That magic money-maker: the add-on fee that makes it whole again.

Take Royal Caribbean Cruise Line. Traditionally, cruises were all-inclusive. But in 2008, it had the bizarre notion of charging customers $15 if they wanted a steak. At the time, it spun the surcharge by saying the meat would be “all natural,” hence the cost.

Which should have begged a big, loud question in the travel press (but didn’t): Does that mean Royal Caribbean is admitting that its regular meals are artificial?

When businesses charge customers more for the “good” variety of their product, they are admitting their core product is substandard. In fact, to make more money, they need it to be.

Don’t you think that Six Flags is more likely to convince you to splash out another $80 for its line-jumping Flash Pass if its makes its queues as Purgatorial as possible?  Isn’t it in Apple’s interest to confound consumers to the point where they either buy AppleCare or lay out $49 for a pay-per-incident consultation with customer service? Why replace the old padding on the coach seats if it prods your ass into buying a paid upgrade?

Nearly every major cruise ship also has several additional restaurants that compete with the non-fee meals served in the main dining room. These supplemental restaurants charge extra fees because the food is deemed to be (and often is) gourmet, and those meals are talking points among passengers on every cruise you’ll ever take.

That begged the other question no one in the press seemed to ask: “Why isn’t your main dining room as good?” It’s hard to come up with an answer that doesn’t make excuses for the vendor or patronize the consumer.

And if they’re going to assume passengers are going to crave that better meal, why do people at the cruise lines get so agitated when I write that their food is substandard? They want it to be substandard — so I feel obligated to spend more money in the supplemental restaurant. They just want it to be subtly so.

At the Apple Store, the shelves are stocked with software that, if you squint, exists because there’s a failure of some kind in the boilerplate system software. Why else would I need to buy a program that cleans up my iTunes songs or makes my iPhoto images easy to edit? If the standard Apple product was as splendid as the fanboys say it is, then you wouldn’t need to embellish it by buying more stuff to plug its holes. There wouldn’t be any.

The airlines have learned to turn this concealment of incompetence into a profit model. It will sell you a seat, yes, but if you want a good seat — not one in the middle, or one in the back — then you have to pay more. US Airways’ Choice Seats fees are levied on windows and aisles toward the front of the plane.

For decades, the airlines spent millions on TV ads proclaiming how comfortable their seats and service were. They drummed it relentlessly into our ears. Now, though, the airlines need you to be dissatisfied with their standard service. They need you to upgrade. Their stock prices depend on it.

So you will only hear airlines praise their first class service now.

Even the TSA has gotten in on the add-on bonanza. If you have the cash, you can buy yourself some faster screening. That’s the function of Clear, which enables richer Americans and corporate expense account holders to pay for better access to a government function. Hey, only the little guys wait in line anymore.

The net effect of all these fees is that classism is now oozing into many of the American industries that used to be rather democratic.

Apologists for these add-ons, like the companies themselves, twist things around to rhapsodize that you don’t have to pay them. They will tell you that they provide the option of comfort only for those who demand it. This, to me, is sophistry, and it ignores the historic and unmistakable fact that companies have intentionally eroded their core products to the point where an optional upgrade is nearly necessary, and they have done it under our noses.

The basic product is intentionally designed to be not good enough. It was never like that before.

So how do you persuade consumers that your basic product is basically unworthy without exposing yourself to outright scorn? Simple. You do it by covering your flanks with those two important defenses: exclusivity agreements, like AT&T did, or passionate brand loyalty, like Apple.

It only works for a while.



One Response to “The financial incentive for providing bad service”

  1. Ken

    Incredibly well-thought-out and articulated! And I love the photo caption above. Terrific job!