De-packaging, paying for what you actually buy

Packages are no longer in fashion. While there are still all-inclusive packages, where the idea is to take care of nothing and benefit from everything, the trend is towards de-packages (or « unbundling »). There are 2 reasons for this. One, on the customer side: the increased possibility of putting together your own package on the internet and possibly benefiting from special offers from different service providers. And the other, on the business side: the omnipresence of price comparison sites. To get back into the top positions of Google searches, you need to display a low price. So you have to sell a product that has been stripped down to its bare essentials. A product reduced to its simplest expression.

Packages have largely given way to simple products with price supplements. Which means that even more than before, you can choose what you want and especially what you don’t want: you don’t want to choose your plane seat? You don’t want insurance? You don’t want a GPS or a car seat for your hire car? Don’t want your holiday rental cleaned? It’s all possible. And you’ll pay less overall than before.

De-packaging: a good or a bad thing?

If you don’t need a GPS, or if you’re happy to do the cleaning yourself, why pay for it?

Moreover, de-packaging makes prices more transparent. When everything is packaged and the end product looks expensive, it’s hard to know why.

The difficulty lies in assessing the value of a service. Customers have to assess whether the benefits they derive from the service are worth the price quoted, with the added frustration of having to pay for a service when they have the impression, sometimes mistaken, that it costs the company nothing. For example, choosing an airline seat (there are really high implementation costs associated with IT developments, but it’s true that the marginal cost is low for each transaction).

Let’s stay with this example: What do I gain from choosing my plane seat?

  • Time: 5 minutes saved getting out if I choose a seat at the head of the cabin. Very useful if I have another flight right after, with a short connection. I’m prepared to pay to have a better chance of not missing my connection. At least I have the option and it’s a real service.
  • Comfort: I go to the toilet 3 times a flight and I want to be aisle-side. I love the scenery and I want a window seat.

How much are we prepared to pay to be sure of benefiting from these advantages, which are valuable for some and totally useless for others? What’s more, there’s a non-zero probability of benefiting from them even without paying.

This type of service is real, it meets a need. But not for everyone. Not all the time. But the market regulates itself, and if the price is prohibitive, there will be no customers for it.

Where it gets complicated is when the price is hard to justify and appears to be a real rip-off for the customer.

A recent example from my own experience: I’ve just rented a villa in Sardinia for 4 days with 7 friends for around 400€. Cleaning costs (compulsory): 240€. Very low-speed internet (optional): 15€. Water + electricity (compulsory): 10€ per day.

The only reason I can see for these grotesque prices is the possibility for the rental company to move up in the search algorithms. And appear to be cheaper. The price of dry hire has become very tempting. It’s only after the litany of extras, some of which are not optional, that we discover a much higher overall price. But reasonable in the end. In terms of perception, I’m left with a bitter taste. In fact, I grumbled on the spot when I asked what the profile of the cleaning staff was, so that the service would cost 48€ an hour (for a cleaning time that I estimate at 5 hours). Apart from a stammer, I didn’t get an answer.

Other real-life examples: at an airline, printing your ticket when you’ve forgotten to do so: 45€. Horrible. Adding hold baggage for another airline: 55€. Hard to swallow. On an On Line Operator: paying for your rental with a credit card: 16€. And what do I do if I want to pay using something other than a credit card?

Taking responsibility for pricing

So how do you know if the price is too high? When you’re pricing, how do you know if the price you’re offering is reasonable? The answer is simple. If you can’t explain to a customer face to face why the service costs that price when it seems too expensive, then the customer is obviously right. You have to be able to explain it.

I once had to pay a supplement of around 30€ for arriving at a small rental after midnight. I understand: the private individual who was supposed to hand over the keys came at an indecent hour, with a 30-minute drive. So I accept. And I understand.

But there’s no reason why an airline should charge 45€ to print a ticket. I can’t see myself calmly explaining this to a customer.

Fellow Pricers, please bear this in mind.

Keywords: De-packaging, Packaging, Pricing, Airline, Rental