I wrote about people’s irrational sensitivity to gas prices some time ago. This time I’m writing about people’s irrational sensitivity to service price increases. In each case, we are not talking about a lot of money. There are values behind each service. Still, people complain vehemently about the price increases.
Debit Card Fees
News came that Bank of America is going to charge $5 per month for using the debit card for retail purchases. Earlier some other banks rolled out similar service fees in select geographical areas. The reaction from the general public is a huge outcry. President Obama denounced it in an interview on ABC.
Is it such a big deal when the fee is completely avoidable? The fee is charged if you use the debit card for purchases. If you don’t use it for purchases, then there is no fee. Problem solved.
If you do want to use the debit card for purchases, it means that you derive a value from using the debit card over using something else (credit card, check, or cash). In that case, how is it unfair for a bank to charge a fee for delivering value?
If you think the fee is too high relative to the value received — that it should be $0.25 a month, not $5 a month — isn’t it like everything else we buy every day, that you either don’t buy or you seek out a more cost-effective alternative?
The bank isn’t forcing anybody to use the debit card for purchases. It only puts a price tag on the service it offers. It is a service after all. The customers are still in complete control in accepting or rejecting the price tag based on the perceived value of the service. If it’s too expensive, just don’t buy or buy something else. End of story.
People still want the service. They just want it for free. There are plenty of alternatives. I really don’t see what the problem is. Let the price drive supply and demand to a new equilibrium.
Similar reactions happened when some banks raised ATM fees from $3 to $4 or $5.
The fee is only charged to non-customers. Think about it. You are not their customer. The bank isn’t obligated to let you use its service for free. It puts a price tag on the service. You see the price tag. If you don’t think it’s worth it, press Cancel and walk away. You won’t be charged. Find your own bank’s ATM or use a bank that reimburses you for ATM surcharges. Problem solved.
Airline baggage fees are another popular topic for complaints.
It costs money to transport those bags on a plane. If you don’t believe it, try shipping your bags by FedEx and UPS and see what happens. If it costs money to provide the service, why shouldn’t airlines be able to charge for it?
It should be included in the ticket price? Then you are paying it whether you check bags or not. When I go to a restaurant, I pay for wine only if I drink wine. I don’t want wine included in the price of my meal. How are baggage fees different?
It used to be included? How does it make it right only because it used to be that way? It only means some people overpaid for years.
Netflix raised its price on customers who receive both streaming and DVD-by-mail. Again there were a lot of complaints. Providers set prices. Customers accept or reject prices. Complaints only mean that customers want the service but they just don’t want to pay the price the provider asks for.
When I go to a store, I see shampoos selling from $1 a bottle to $20 a bottle. I pick the one that I perceive as the best value, neither the least expensive one nor the most expensive one. I don’t complain bloody murder how dare they want $20 a bottle for the more expensive shampoos. What if the brand I usually buy all of a sudden raises the price to $20 a bottle? I just switch to a different one. Supply, demand, substitutes — basic stuff in Econ 101.
What’s the difference here with Netflix? You reassess your purchase decision. Either canceling one service or another or accepting the new price would be a rational response. But complaining? I don’t understand. It only tells me that people still want both streaming and DVD-by-mail. They just don’t want to pay the new price. Is the extra $6 a month such a big deal? The new price is still a lot cheaper than cable.
It seems to me that only service price increases draw these irrational responses. We have no problem with switching physical products, but we don’t like switching services. Providers know very well after all the complaints, many people still don’t switch even if they say they would switch, because the services they offer are still the best deal when everything is taken into account.
Say No To Management Fees
If an advisor is charging you a percentage of your assets, you are paying 5-10x too much. Learn how to find an independent advisor, pay for advice, and only the advice.