Wednesday, December 7, 2011

Should you charge customers an 'explanation fee'?

Retailers are doing it tough. Shoppers are coming in, speaking at length with the shop assistant about what the widget does and does not do, only to then leave the store and buy the widget cheaper online.  What's a retailer to do? How do they provide customer service but not lose the sale?

In his Fairfax piece last week, Terry Lane wrote that JB Hi-Fi has introduced a $30 "explanation fee" to recoup some of the cost of providing expertise to potential customers.  Think it will work?  Before you are tempted to follow in JB's footsteps, here are some behavioural elements to consider.

Customers are just doing what's smart
People do not believe they are doing anything wrong by speaking with one shop's assistant before buying from elsewhere; this is the very nature of shopper research and a deeply ingrained social construct.  It used to be hitting the pavement and going shop to shop.  Now it's research online, visiting a physical store if you need to sight, handle or try on the product, and then back to online to purchase.

Do customers feel guilty about wasting the shop's time? No way. In fact they are more likely to feel they deserve the better online price because they have worked for it through their research efforts.

Further, the customer does not consciously think about the overhead costs to that business.  I don't know about you, but when I wander into a store I do not calculate the cost of the assistant's salary, the electricity, merchandise and marketing that have gone into opening the store that day.  These are all lumped into the mental bucket of "sunk costs" that will have to be paid whether I buy from that store or not, and this protects me from any guilt associated with chewing up the shop's time.

So JB has a bit of an issue. They are introducing a fee for something people don't think of as a service. Now if JB's intent is simply to reduce 'tyre kickers', it may work because the fee most certainly will stop people seeking out their staff.  But in my view, disenfranchising potential customers is not a great move.

How to recoup payment for staff time  
As the nature of retail moves from in-store to online, and shops become more service rather than sales-centric, here are four thoughts about what businesses like JB might do;

1. Promote the benefits of buying in-store
Bricks and mortar stores have one massive advantage over online - stock.  "Take it home today!" should be the mantra because people hate to wait.  By the time they have come to the shop they have likely been thinking about the widget, so talking to them about taking it home and showing their loved ones tonight is a way of closing the gap between shops and online.  Make sure they are handling the widget to encourage ownership as you say "Mr Customer, whilst you might save a few dollars buying online, you can take this widget home right now and get on with things".

2. Spook them about invalid warranties 
As mentioned in Lane's article, people who buy goods from overseas often overlook the fact that the warranty may not extend to their country.  Shops like JB have a great opportunity to use people's aversion to loss to maximum effect by playing on our imagined distress if our widget breaks down.  We succumb to concepts like 'extended warranty' because peace of mind is worth paying a bit extra for.

3. Provide a value-add service 
Rather than calling the consultation an "explanation fee" that sounds condescending and a cost rather than benefit, call the service something like "expert consultation", "widget instruction session" or "how to widget".  Remember that people don't perceive shop assistant service as one that should be paid, so expectations of the service need to be interrupted.  Go to the extent of putting expert staff in a different uniform, position them in a different area of the store and even consider bookings.

The shop may suddenly find it has a whole new income stream generated by tutorial services which may also grow rather than disenfranchise its customer base.

4. Rebate service 
Offer the customer's who use the expert consultation the opportunity to rebate their fee against a product purchase.  So the $30 effectively becomes a voucher for their next purchase.  This will work in a number of ways. First, it will help overcome the objection to the upfront fee because it will feel less like the business is getting the money - it's more like they are just getting a deposit.  Second it will be hard for people to forgo their 'free' $30 so they will be more likely to buy something in store. And third, it means the business has an ongoing relationship with the customer and is more likely to get repeat business.

No doubt retailers like JB Hi-Fi are fed up with customers who take without giving, and in so doing provide online retailers with an even greater advantage through lower overheads and higher margins.  But this is the new world. I think it's great that we are seeing new models like JB's "explanation fee" popping up because it marks an attempt by bricks and mortar retailers to challenge the new online purchase cycle, and whilst this model may not quite succeed, it will at least make the retail sector consider new ways of balancing personal service with fair return.

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