With consumers stubbornly resisting higher prices, companies are trying to figure out how to increase revenue without really raising prices. Increasingly, the solution has been through the addition of fees for what had once been free features. Although some consumers abhor "nickel-and-dime" pricing strategies, small additional charges can add up to a substantial source of revenue.
The numbers can be staggering. Fees for consumers who pay bills online, bounce checks, or use automated teller machines bring banks an estimated $30 billion annually. Retailers Target and Best Buy charge a 15 percent "restocking fee" for returning electronic products. Credit card late payments — up by 11 percent in 2003 — exceed $10 billion in total. The telecommunications industry in general has been aggressive at adding fees for setup, change-of-service, service termination, directory assistance, regulatory assessment, number portability, and cable hookup and equipment, costing consumers billions of dollars. By charging its long-distance customers a new 99-cent monthly "regulatory assessment fee", AT&T could bring in as much as $475 million.
This explosion of fees has a number of implications. Given that list prices stay fixed, they may result in inflation being understated. They also make it harder for consumers to compare competitive offerings. Although various citizen groups have been formed to pressure companies to roll back some of these fees, they don't always get a sympathetic ear from state and local governments who have been guilty of their own array of fees, fines, and penalties to raise necessary revenue.
Companies justify the extra fees as the only fair and viable way to cover expenses without losing customers. Many argue that it makes sense to charge a premium for added services that cost more to provide, rather than charge all customers the same amount regardless of whether or not they use the extra service. Breaking out charges and fees according to the services involved is seen as a way to keep the basic costs low. Companies also use fees as a means to weed out unprofitable customers or change their behavior. Some airlines now charge passengers $50 for paper tickets and $25 for every bag over 50 pounds.
Ultimately, the viability of extra fees will be decided in the marketplace and by the willingnessof consumers to vote with their wallets and pay the fees or vote with their feet and move on.