August 16, 2019
In the glorious summer sunshine, I went out in one of my classic cars over the weekend to a cars and coffee event. In 2007, I left my car with a company I’d identified to someday soon perform a full restoration. I had a number of things going on at the time, and I wasn’t sure when I could commit to starting the restoration but they would hold on to the car for me in the meantime. Three years went by and not much changed in my schedule so the restoration still hadn’t started. But then the company got in touch with me to say they’d have to start charging me storage until the work started. Their fee wasn’t enormous, but it was noticeable. When I saw the regular transaction hit my credit card, it did get me thinking about when I could get going on the project. It motivated me to act.
It’s a good lesson for all of us.
Today’s work is full of grand, lofty projects and initiatives that address timely trends for the sake of company growth. Those projects are of course worthwhile, but we shouldn’t forget the more pragmatic, one-step-at-a-time approach to profitability as well. You need to address both, not one at the expense of the other. Incorporating fees and surcharges into your business model can further both strategies.
Will it Change Customer Behavior in a Positive Way?
A flexible, evolving plan for implementing fees and surcharges should be a critical part of your broader commercial excellence strategy. It can help you guide your customer’s behavior. Here’s the thing though: your customers are continually changing. For this reason, it’s absolutely critical to have a feel for your customers’ posture on a number of aspects of the relationship. You can sense this by their willingness to engage with fees, or their preference for behavior-modification. In my car restoration example, the fee charged by my restorer worked perfectly. They motivated me to spend.
Some buyers like to place large orders infrequently, and some prefer to place smaller and more frequent orders. As a supplier, your organization will have a preference on which is the preferred method. Implementing a fee for the non-preferred method is a good way to steer your customers. The process is usually understandable, and quite defensible. In my car example, the restorer had costs and operational implications associated with storing my car for a long period of time and when communicated, I understood and accepted it.
Another common approach is to charge a surcharge or even make a price change when the price of oil (and therefore gasoline and other energies) increases quite dramatically. This can easily be done – which is why it’s attractive – but use caution in two aspects. This can be perceived as opportunistic if the change is communicated poorly and, if you implement a fee when gas is $4 a gallon, that fee should be removed when gas goes back to $3, for example.
Fees and surcharges are an important part of a commercially excellent business strategy. But they must be implemented with your customers’ willingness in mind.
If you need a recommendation of a classic car restoration place (that’s my car pictured above), or if you want to talk about how to implement some behavior-shaping fees and surcharges in your business, get in touch!
To learn more about how Vendavo supports organizations manage a dynamic, volatile pricing environment, check out our strategic price management solution.