“I’m bad to the bone”
Investing your entire 401k in Enron stock.
Marketing Las Vegas as a “family friendly” destination.
Amongst the worst business ideas ever, customer experience zealots add “dependence on bad profits”. For the Net Promoterati, the label of “bad profits” is wielded like a medieval mob scene accusing an unpopular villager of witchcraft. It’s time to break out the pitchforks and torches.
I’m here to tell you it’s all wrong. Leave bad profits alone. What did they ever do to you? (Except reduce your NPS, of course.)
The latest assault on bad profits is from the UK government. Say what you want about murderers or perpetrators of mayhem, the British media hath no fury like a consumer wronged. It is thus that the BBC gleefully informed me that the government is working to stamp out the practice of charging fees that are “in excess”. Consumer groups welcomed the news. “Drip pricing” is going to be regulated. No, we are not charging for drips, it’s the unconscionable practice of revealing more and more incremental pricing as you go through the purchasing transaction. (for a humorous, but rude take on this, see the following Fascinating Aida video).
What’s next? Regulating the shipping and handling when you get “free” additional Shamwow products? Overdraft fees. Interest rates that you might think come with a broken kneecap clause. Exorbitant roaming fees if you use your mobile phone while overseas. The government needs to step in and put an end to it now! Any government, please.
My fists turn white with rage. Well, at least I’m mildly upset. I welcome bad profits. We need them to create opportunity and differential performance: your bad profits are someone else’s large, untapped customer base.
Of course, I’m not in favor of deceptive practices. Forcing transparency is a legitimate role for regulators and nobody would condone dishonesty. But think for a second where “bad profit regulation” leads us.
Take airline fees for bag check-in. Ban them. It might cost the airline $10 to fly your bags from San Francisco to New York. That might even turn out to be the flight you are on (no extra fee, yet). If they choose to charge you $50 it’s time to call in the Feds. Or MI6 perhaps. Surely airlines should only make profits from selling seats on the plane! Overpriced drinks and airplane internet services look pretty profitable also, why are they not free with the flight? Time to force airlines to adopt single-dimension pricing strategies. Then we can get after the banks, no way we should have to pay overdraft fees. Or at least, they should be something more reasonable – after all, providing an overdraft is not really a business good is it? Not like, say, buying virtual livestock on Farmville. Which should also be free, or at virtual cost, while we are at it.
I hope the problem is obvious. What constitutes fees, bundled versus unbundled products and services, “unfair pricing” – what’s fair margin on a Gucci handbag? – all these aspects of good and bad profits need to be resolved by the market, not by regulation. Sure, force disclosure. Ensure costs are not hidden from the customer. But then let customers decide.
Bad profits are a massive source of innovation and entrepreneurial activity. Netflix built a business due to Blockbuster’s overdependence on late fees. Southwest Airlines relies on “bags fly free” as a differential pricing strategy. Skype persuaded us that almost any profits on phone calls would prove to be bad.
If you don’t like the particular flavor of profits you generate for a business, take your business somewhere else. It’s quite possible that others don’t share your priorities and feel that it’s a reasonable way to make money for shareholders and deliver value to customers. The market will decide and, if those profits really are “bad”, you can bet the next Scott Hastings will be building a company to capitalize on them.