Fee or Free: The ongoing debate over charging for customer service!
2011 will be remembered for many things - the European crisis, tumultuous stock markets, slowing growth in emerging markets , Steve Jobs' passing - I am sure you can add many more to this list! But one event of more immediate (and perhaps, long-lasting ) impact that will rankle among (US) Banks and Telcos is the strong outcry over transaction "fees" that some of them tried to charge their customers.
Bank of America tried to charge a monthly fees on a certain segment of its customer base, for using their debit cards (as did a few other large US Banks, albeit on a limited "test" basis) and had to reverse course within a few weeks; similarly, Verizon withdrew as suddenly as it had announced, a fee for paying bills (one time/ ad-hoc payments) online or over the phone. One of the most visible revolts over the so called "differential-pricing" strategy happened outside of these industries; Netflix, which has transformed the way we all watch movies, made a faux-pas when it introduced a higher price point for customers who combine streaming movies online with the traditional mail delivery DVDs, ostensibly to help migrate viewers online! What resulted was an embarrassing roll-back and the CEO himself publicly acknowledging that the move back-fired!
I am sure all the Companies referred to above had well thought-through strategies behind their seemingly hasty actions. The challenge lies elsewhere - in recognizing that certain fundamental expectations of today's customer have changed; that managing consumer behavior across digital markets and traditional brick-and-mortar ones needs consistency of strategy and execution. And more significantly, which is the point I want to elaborate on in this post, customers have started treating large "Service Providers" - in this case, Banks and Telcos - akin to "Utilities" and expect such Providers to offer incremental services with no extra fees.
Banks and Telcos have created huge infrastructure in the US. Our urban centers are arguably, "over-banked". Banks jostled over each-other to establish ATMs and branches in the decade leading up to the Financial crisis, in parallel with creating strong online capabilities. Telcos continue to add a higher digit prefixing the "G" to boast how fast and advanced their networks are. Somewhere along the line in establishing that digital-plus-physical ubiquity, these Service Providers have also set expectations that they are always available to serve every customer segment or, putting it in economic terms , they have created the impression that the marginal cost of serving the smallest customer is virtually zero. It is fair to expect that from a Utility, but are Banks and Telcos being marginalized to become true Utilities? To attempt to answer that question, one has to look at two critical trends in the B2C markets of today.
First off, the Internet economy has made all of us believe firmly that information of all kinds is free. Yes, sure, data analysis and insights cost money, but why would I pay for finding out what the weather is going to be (though, a few years back, I used to subscribe to TV channel bundles that included prominent weather channels!)? Or for getting directions to drive to dinner (even though buying a navigator requires "real" money!). Extend that to "why should I pay for an online bill payment capability?", even though it acts as a great personal assistant, reminding me to pay my bills on time and avoid humongous late fees and penalties! And stretch that further into the real, "physical" world we live in - why should I pay for an ATM to use my money, no matter the ATM is open 24X7, remembers my preferences, is a 5 minute walk or drive from home and is available in any other place I travel to? Why should I pay for using my Debit card for grocery shopping? Imagine if my Electric Provider levies a surcharge, over my unit rate, for using my Air conditioner on balmy summer nights? Or dictates how many power-supply points I can have in my home! I don't want to make this argument ludicrous, but I am sure you get the drift - If you are my Bank, I am giving you my money to safe-keep, so why should I pay you anything extra, when I do not even buy electricity or phone service from you? Similarly, if you are a Telco, you cannot charge me, beyond a monthly rent, for content I generate (my voice) over your network or charge me for downloading someone else's content that I am already paying for separately (think movie or e-book)! A recent article by Anton Troianovski in the Wall Street Journal makes an interesting point about how the iPhone made it worse for Telcos to recover a decent return on their large network investments.
Which brings me to the second critical trend shaping B2C markets: control of the consumer experience. Apple, led by Steve Jobs' vision, launched a slew of block-buster devices which focused on superior customer experience. Apple also did a great job of controlling that experience within a "walled" garden like the iTunes, integrated with the iPod. (Chris Anderson of "The Wired" magazine describes that concept very articulately). The market is willing to pay a premium for that experience as it fundamentally transformed the way people consumed music in particular and with the advent of the iPad, content in general. Unfortunately, Telcos and Banks have not yet figured a way to create, control and monetize a unique customer experience. Should they adopt the "Platform" model of Google, wherein a lot of the information you and I seek for free is indirectly sponsored by advertisers and all Google does is to provide a technologically superior platform for that exchange to happen? Should they rather be trying to own the customer experience by seeking to control that through a high-tech interface?
Or will they have to find a way to eke out razor-thin profits and survive as "Utilities"? I am keen to hear your views!
