Why You’re Paying More Than List Price So Often
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What is the main topic discussed in this episode?
Listen at schwab.com slash washingtonwise.
Here's your Money Briefing for Monday, May 13th. I'm J.R. Whalen for The Wall Street Journal.
Why are businesses separating fees from listed prices more often?
Businesses often include fees and extra charges in the listed price of goods. But recently, they've been breaking out those charges and listing them separately.
Businesses are able to make more money when they unbundle costs like this. When the menu price looks lower, people are more likely to buy it. People don't shop based on fees. They shop based on the price of the product. Then the fees come later.
We'll talk to Wall Street Journal reporter Rachel Wolf after the break.
This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington.
How does unbundling prices let companies increase revenue?
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Consumers have made it clear they don't like being charged fees, and yet those extra charges keep popping up. Wall Street Journal reporter Rachel Wolf joins me. Rachel, companies have been charging fees for decades, but how are they changing the way that people see prices for goods?
Yes, fees have always existed. The difference now is that companies are a little bit sneakier than they once were about what they're charging fees for and how they're presenting it. There are some who argue that fees shouldn't exist at all. The ideal way to shop is one flat price. I think we were all okay with an occasional fee when it made sense for us, like gas stations have been charging a little bit extra to use a credit card for a long time. We're kind of used to that.
What psychological tricks make consumers accept surprise fees at checkout?
But it's now that more and more businesses have adopted the same policy and we're seeing fees. It's not just credit card fees. It feels like restaurants are charging a, my napkins are more expensive fee. And people really hate that. They're really bothered by it.
You're right that companies are unbundling prices. And so they're presenting the price and then they're presenting a fee alongside the price. Why are they doing that?
Businesses are able to make more money when they unbundle costs like this. When the menu price looks lower, people are more likely to buy it.
How do businesses justify fees to customers and call them discounts?
As the Consumer Financial Protection Bureau told me, people don't shop based on fees. They shop based on the price of the product. Then the fees come later. There's a pocketbook component and there's a feeling ripped off component. It's two-sided.
So if the price is lower, people are more willing to pay it, even though there could be a fee on top of that.
People are more willing to pay it because they don't know when they go to pay it what the price is going to be. And once they've started the transaction, even if they haven't fully paid for something yet, say you're checking out for concert tickets, you've made plans, you've texted friends about it. And then when you go to check out and you learn that the ticket isn't actually $100 like it was advertised, it's $140 with fees, you're probably still going to buy it because you've already gone through all that activation energy. Right.
It's almost like a mind game.
Exactly.
Which industries are adding new mandatory fees and how do they work?
How do business owners rationalize the fees that they tack on to services?
Business owners say that their costs have gone up, and this is a way to be more transparent about where the extra money is going. They say for things like credit card fees that actually it's an opportunity for the people who want to avoid it, people who want to pay cash. It's a discount. It's not a credit card fee. It's a cash discount. People don't feel it that way. People don't. Don't companies understand that having to pay fees can infuriate consumers? I think that they are starting to see the consequences, but we haven't experienced a shift yet. And perhaps so far they've decided that the payoff is worth it. So even though these fees really anger people, some businesses have decided that it's worth potentially alienating some consumers to make more money.
How does the tacking on of so many fees affect how people comparison shop?
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:01–0:36
2
Why are businesses separating fees from listed prices more often?
0:36–1:31
3
How does unbundling prices let companies increase revenue?
1:31–2:32
4
What psychological tricks make consumers accept surprise fees at checkout?
2:32–3:05
5
How do businesses justify fees to customers and call them discounts?
3:05–3:57
6
Which industries are adding new mandatory fees and how do they work?
3:57–5:15
7
Are consumers pushing back and what legal actions are emerging against fees?
5:15–6:23
8
What practical behaviors are changing because of fees and how should shoppers respond?
6:23–8:36
Speakers
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