Sensitivity to small fees

I saw this article on Valleywag that quoted a New York Times analysis of the effect of small fees on e-commerce transaction size and volume. It seems that reducing small fees can greatly increase revenue. Money quote:

Overstock.com has found other, somewhat puzzling, behavior among its customers. The company has for years offered $2.95 shipping fees on all sales. But according to Patrick Byrne, Overstock’s chief executive, the site will occasionally drop the fee to $1, “and suddenly people start ordering $400 bookcases and beds,” he said. “The average order size goes up unbelievably.”

Seth Godin argues that anything other than free shipping will deter customers, particularly repeat customers.

… Amazon has taught millions that free shipping is the way the world should work. As a result, anything more than free just feels wrong.

This article from FastCompany.com about firms charging customers for bags is also instructive:

The Swedish retail giant encourages customers to use fewer bags by charging shoppers 5 cents for each disposable bag they take. … In the United Kingdom, the policy, which started in June 2006, cut bag use by 95%.

Are people so loss-averse that a nickel will factor into their decision making process? Apparently so.

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