A lot of professional marketers and consultants spend their days considering financial, marketing, and service performance issues of major brands, but a lot of what we preach has just as much application for small businesses and chains of small retail stores. I have recently experienced or witnessed several performance improvement opportunities, one of which has already had identifiable and observable negative financial impact on the retailer (Performance Bicycle). Improvement opportunity means someone in the chain of service design or delivery did something that resulted in an experience that was less than satisfactory for the consumer; and the result is less than ideal profits and poor brand management for the company.
Our clients, partners, and networks will attest readily that I am a big believer in value driven behavior and also a big proponent of Customer Lifetime Value (CLV) measurement and segmentation. First, I will explain how a seemingly trivial five dollar service fee is inconsistent with optimizing customers’ value perceptions; and then show with very basic math how Performance Bicycle actually loses money from a CLV perspective by merely having a policy of charging the fee – even if the customer does not pay it.
The Service Fee
Performance Bicycle charges a $5.00 fee for installing shoe cleats on cycling and spinning shoes. The cleats hold the shoe in place on the pedal so the biker’s shoes don’t slip off during a ride or spin class. I was in Performance Bicycle with a friend that purchased cycling shoes for $69.99; about $10 more than at an online retailer (we checked the price while still in the store with a barcode scanner application). My friend also purchased the shoe cleats for about $24.99. The total receipt with tax was just over $103 (before any service fee).
Why The Fee?
I would imagine this charge is to cover labor costs associated with lost productivity (opportunity cost) of the retail employee’s time that would otherwise be allocated to selling and service tasks (some of which may be revenue generating, some not), and the delay of operational tasks required during the employee’s shift (the hourly employee has to stay longer to finish required operational duties). Certainly, any revenue driven company is likely to employ similar fee-based tactics to recover these costs – it’s only natural. Part 2 of this post will discuss why acting against this instinct is more profitable.
Negative Customer Value
Anyone with a standard Allen Wrench can install the cleats. It was the first time I had done this so I spent time examining a diagram showing which way the cleats should face on the under-side of the shoe; it took about 1 minute 20 seconds to look at the diagram and install cleats on both (not each) shoes. Assuming the cycling shop employee had been as novice as I at this task, the seemingly trivial $5 fee multiplies to $225 per hour for the service.
- There are 45 – 1 minute, 20 second intervals in an hour: 60 min / 1 min, 20 seconds = 45 intervals
- 45 intervals x $5 service fee = $225 / hour
Would you perceive a value if paying $225 an hour for someone to turn four screws? If you make more than $225/hr and would lose the opportunity to do so by turning four screws, then paying the fee is technically ‘of value’ to you. Otherwise, it is most certainly not.
Value (and Customer) Centric Policy Change
For me, the higher perception of value would be built in. If I was buying cycling shoes and cleats, was aware of such a policy, and other service components remained superior/unchanged, I would not consider going elsewhere.
Free CLV Survey Code Part 1 of 2: CVAL
Return July 5th for Part 2, comment on either post and get a free Customer Lifetime Value survey design (reporting fees depend on design and client needs, no obligation to purchase reporting or anything else).