Monday, November 05, 2007

Effect of Fees on Your Brand

Sometimes fees above and beyond the base price of your product are a lucrative part of your business. For example, late fees, though they purportedly are exceptional and merely for recouping revenue that would otherwise be lost, are in fact a major cash cow for video rental stores.

From a narrow economic point of view, such fees are good for your business. After all, business is about making money, and the fees bring in revenue.

But the long-term impact of such fees is hard to measure and may be negative. Fees affect the long-term perceptions of your product and company. They affect the equity of your brand.

For details, see this post by Roger Dooley on the Neuromarketing blog.

1 comment:

Jeff Lash said...

Great point. Unfortunately, it's often a struggle for product managers, stuck between short-term (financial) objectives and building long-term value. Actually, it's an issue for companies in general, but quite often product managers seem to get stuck in the middle, with the voice of the customer on one side and the voice of senior management on the other.

Ultimately, if you can create a fantastic customer experience and have the right margins on your "base price" product, you can have the best of both worlds.

Contrast your example of video rental late fees with Netflix, who lowered our monthly subscription by $1 after we had already committed to subscribing following our trial month. Yes, they lost $1/month in revenue, but they gained lots of goodwill, free advertising (here), and lots of that newfangled "viral marketing" that companies are going after. (Hint, the key isn't in your marketing, it's in your product!) The long-term impact on their brand from lowering the monthly fee vs. raising the monthly fee is likely huge.


Jeff
My blog: How to be a Good Product Manager