The True Price of Penalties

Fram, Eugene H.; McCarthy, Michael S.
September 1999
Marketing Management;Fall99, Vol. 8 Issue 3, p49
More and more businesses, ranging from small day-care operations to major airlines and hotels, are instituting or increasing consumer penalty fees. But despite the growth in number, size, and type of such penalties in recent years, very little has been written on the subject. This lack of available information combined with business managers' reluctance to comment led us to investigate how consumer penalties impact buying behavior and to develop a strategic framework to guide managers. Surprisingly, we found a rather broad consumer acceptance of penalty practices. The critical factor was whether the buyer perceived the penalty to be the result of free choice, personal negligence, or unavoidable circumstance. Nevertheless, if the competition doesn't have similar penalties, companies will want to be particularly attuned to potential consumer defection.


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