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Sneaky COVID Surcharges Only Destroy Business

sneaky covid surcharges

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By Friday, 09 October 2020 08:03 AM Current | Bio | Archive

Influencing customer’s decisions isn’t really that complicated.

Small changes to what’s called the "choice architecture" can gently nudge people the direction you’d like them to go.

A sign in a hotel room about the benefit of reusing towels can cut shave laundry expenses (and help the environment).

Less favorable options listed as decoys can nudge someone to buy the most profitable size of popcorn. Servers who leave mints when the bill comes can coax much higher tips out of their diners.

With the tiniest of nudges, businesses can make more money while engendering loyalty from their customers — after all, people like to make choices for themselves.

We don’t like having choices foisted upon them, and we hated being tricked into something.

Alas, this is what many restaurants are doing in response to ongoing economic fallout from the COVID pandemic, adding surcharges to diners’ bills — and frequently not even telling them about it until the check arrives.

Restaurants are among those businesses hardest hit by the way we’ve allowed COVID to paralyze our society. Between actual lockdowns, social-distancing mandates that reduce the number of patrons, and people just not eating out to save a few dollars, restaurants are in trouble this year.

While there has been some aid to the dining industry — like the faulty PPP loans, direct aid to help closed restaurants, and the CARES Act’s enhanced unemployment benefits, it hasn’t been enough and it never will be. So the burden of "saving restaurants" has been shifted to customers — but by force, not by gentle nudges.

Last week, the New York City Council passed a new bill allowing restaurants to add a COVID surcharge of 10%, which will stay in place until 90 days after life returns to normal — whenever that is. This is coming as a shock to patrons when they don’t learn about the surcharge until the bill comes.

Designed to help, some restaurateurs are scared that the 10% charge, at a time when it’s a struggle to get diners in the door to begin with, will only serve to scare off customers.

Even The New York Times has been forced to admit this.

Some restaurant owners have refused to add the 10% percent surcharge, while others have said they’ll add a lower surcharge. One concern is how this will trickle down to servers, as customers might make up the difference by simply tipping less — very troubling for an industry that relies on tips.

The food-service industry has always been free to change their menu prices again, playing with the choice architecture of popcorn sizes is a decades-old trick for getting people to buy the one you want. But when the price at the end is noticeably bigger than the one advertised, people start to grumble.

This is a phenomenon that many have already experienced with credit card surcharges, which businesses have long been happy to slap onto bills to cover the "hidden costs" of that method of finance.

A 4% surcharge is one most businesses can slip past the goalie, but one restaurant in New York went so far as a surcharge of 4 dollars until the blowback because too intense. (Instead they now offer discounts for cash payments.)

After some successful litigation, prices in New York are now supposed to be listed in "dollars and cents" rather than percentages, so people know what to expect, but it’s yet another instance where customers are left with the feeling of getting nickel-and-dimed. Some merchants go so far as to hide surcharge under the term "non-cash adjustment" or "svc fee."

Others may "warn" customers about these extra charges, but in small print on the menu.

Until recently, credit card surcharges had been illegal throughout much of the country, but a recent court case in New York (again) struck down the state’s ban on credit card surcharges, permitting merchants to add these to the bill.

Influencing customer’s decisions isn’t really that complicated. Small changes can gently nudge people the direction you’d like them to go — but mistreating them or ripping them off is a great way to get them to go right out the door.

Sneaky surcharges because of COVID, or anything else, are a bad long-term business model. Maybe struggling restaurants should just leave some more mints on the table.

Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. Read Jared Whitley's reports — More Here.

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This is what many restaurants are doing in response to ongoing economic fallout from the COVID pandemic, adding surcharges to diners’ bills, and frequently not even telling them about it until the check arrives.
credit, card, hidden, costs
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2020-03-09
Friday, 09 October 2020 08:03 AM
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