Nickling and Diming

One of the main complaints consumers have is about companies who “nickle and dime” them all the time, meaning that they charge small fees for a bunch of things that aren’t part of the up-front, advertised cost. Airlines charge fees for baggage, food, and earphones that aren’t part of the ticket prices. Banks and credit cards charge all sorts of financing and usage feeds. Hotels charge for extra blankets. And so on.

Personally, I say bring it on.

First of all, we have to address a common myth. People think that companies resort to nickling and diming in order to squeeze out every little bit of profit they can, no matter how petty. Although it’s true that the goal of nickling and diming is to increase profits, the idea isn’t to profit directly off of petty things.

The fact is, these companies already know how much money to charge so as to maximize their profit margin (or, for airlines, to minimize their losses). Nickling and diming customers will acutally reduce their margins, unless the price increase is offset by a lower base price. And that is exactly what the real purpose of nickling and diming is: to allow those companies to charge less money for their basic service while maintaining their margins.

“But isn’t that false marketing?” you ask.

Well, yes, sometimes it is, when the fee is unavoidable. But here’s the thing: most nickle and dime fees aren’t unavoidable. They’re mostly for add-ons: optional amenities on top of the basic service.

Personally, I hardly ever use these optional amenities, and I’m rather happy to know I’m not subsidizing other customers’ usage. In fact, I sometime rue how many amenities the basic service includes, thinking how many dollars I could have saved if I didn’t have to subsidize those amenities for other customers (especially in hotels). And, when I do use optional services, I’m happy to pay for my own consumption, rather than burden other customers with it. The sword cuts both ways for me.

I don’t deny that the actual economics is more complicated than I’ve presented here, nor that there are many shady uses for the “hidden fee”. But the bottom line is, most of the time, nickling and diming customers reduces my price. So I say, more nickling and diming.

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