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Don’t use Brick and Mortar Metaphors for Online Business
By Jacob Cohen | October 30, 2008
Lately I’ve been becoming more and more tired of the way many online businesses are operating as if they were a brick and mortar business. Specifically, the concept of processing fees and business hours.
Alaska Airlines, for example, charges a $25 “processing fee” to transfer frequent flier miles from one account to another. I don’t think that amount of computing cost has been worth $25 since about 1955. It doesn’t require any human processing at all. They should just call a spade a spade and admit they’re charging a bogus fee just because they can.
Washington Mutual, as another example, lets you access your accounts 24/7, but transactions only take effect during “business hours.” For example, if you transfer money between accounts in the middle of the night, it won’t take effect until the following day. What are they waiting for? It’s not like someone comes in in the morning and processes the pending transactions, it’s all done by the computer. There’s no legitimate reason for the delay.
I guess it comes down to the fact that you’re essentially a captive customer. If an online store had a message at 11pm saying “Hi, please come back during business hours to place your order”, customers would just shop elsewhere. But in the case of airline frequent flier miles or bank accounts, you’re pretty much stuck. You’re not going to abandon those frequent flier miles, or leave the money untransferred.
Ultimately you may decide to look for another airline or another bank that doesn’t have these restrictions and fees, but the problem is, they all do this. There really isn’t anything you can do.
Topics: General |
November 10th, 2008 at 11:33 am
You do not realize it yet, but actually, you appreciate this aspect of online business. Here’s why:
For this example pretend we’ve got three business, we’ll call them Brick And Mortar, Online Service Charger, and Hypothetical Free Online Services. Each businesses descriptive name should give you some information about their service charge model
Brick and Mortar:
This company has high overheads, they have to pay people to write down orders, stamp papers, lick envelops, and managers to coach and mentor them.
Each time they add new customers their bottom line goes up. More customers means more employees. In order to maintain their staff and make a profit they charge services fees.
As a result, service fee’s here average $50 per fee.
Online Service Charger:
This company is smart. They automated most of their services online. They have a development team of 10 people and no matter how many customers they have only 10 developers are needed.
In order to pay for their software development and make a profit they charge service fees. Since their bottom line is less their margin is higher than Brick And Mortar and they make more money while charging you less.
Average service fee cost is $25. You save $25 per transaction so you choose this business. Also, you don’t have to deal with some newb when you are trying to use their services - you just do it online
Hypothetical Free Online Services:
This company has the same model as Online Service Charger with the exception that they don’t charge for services.
In order to make a profit they… Ummm… Put Google adds on their website? I’m suddenly realizing that not charging customers means not making money. Hypothetical Free Online Services Inc. isn’t doing to hot.
So while I definitely advocate that the *smart* way to do business is sweeten your bottom line, increase your customer base to be huge, and give customers a *great* deal, I still understand that customers have to pay (one way or another) for a company to be successful.
And in order for my company to be successful, I’ve gotta get back to work before my boss walks in.
David Kullmann
November 10th, 2008 at 7:54 pm
That may be true for a business that relies on fees to make its money.
I think you’re thinking of something that is a service you pay money for. For example, doing your taxes. You can go into a brick and mortar facility and sit down with someone to help you do your taxes, and your fee helps cover the cost of the building, and the salaries of the employees.
You could also go online and use a web site or a program on your computer. In this case, the up-front development cost is amortized over all of the customers and they are able to charge less per customer.
In contrast, an airline is charging you for the plane ride. Whether you buy it online or in a brick and mortar building, the thing you’ve bought itself incurs a material cost to the airline. They make money by charging to cover this cost plus some extra for profit. I can’t think that people are transferring miles between accounts often enough for a $25 fee to make a lot of money for the airline.
The fees you pay for things like baggage handling, meals, and various airport surcharges and the like are of course ways of increasing the profit from a particular sale (or, as the case may be, just breaking a profit at all), and these could just as easily be built into the cost of the ticket as added on afterward.
But a fee for moving bits of data from one account to the other is there simply because they can, and no one is transferring miles often enough to petition the airline to change this.
Also, what of the “business days” for online banks?