Now that businesses across America are starting to reopen after the COVID-19 outbreak, customers are starting to see “COVID surcharges” on their bills. But a study by Amex suggests these businesses could risk driving away their patrons.
For example, a Texas hair salon is adding a $3 “sanitation charge” to each receipt. A Florida dentist is charging $10 per visit for personal protective equipment. And a Missouri restaurant implemented a 5% surcharge due to rising food prices.
Many customers are angry about the changes. The businesses that have enacted them, on the other hand, view the added fees as essential ways to offset their increased costs and to compensate for revenue lost during the lockdown. Interestingly, the aforementioned Missouri restaurant (Kiko Japanese Steakhouse & Sushi Lounge) removed the surcharge after customers complained. It also raised menu prices.
The owner, Billy Yuzar, told Today.com, “We were hoping to adjust the charge weekly based on the prices we get from our suppliers instead of raising all of our prices across the board on our menu … We can take the harassment on our social media, but when they start being ugly to our employees here, it really bothers us. This is why we decided to just eat the cost of printing new menu[s] and adjust it weekly.”
See related: How I’m spending differently in the pandemic
Other types of surcharges
It’s a subtle psychological distinction, but customers don’t like feeling nickeled and dimed. There was an outcry several years ago when some restaurants began tacking employee health insurance surcharges onto diners’ tabs. Worse yet, a civil grand jury in San Francisco found many restaurants kept the money for themselves.
In 46 states, it is legal for businesses to charge customers extra just for using a credit card. Merchants should tread very carefully – 78% of credit cardholders believe it’s unfair to charge a customer an extra fee based on the way he or she chooses to pay, according to a recent survey commissioned by American Express.
And they’re voting with their wallets. Some 86% of respondents told Amex that if a business they frequently patronize were to start surcharging, they would likely start shopping somewhere else.
Even the long-established practice of tipping leaves a bad taste in some customers’ mouths. A 2018 CreditCards.com survey found millennials were the worst tippers, yet they were much more likely than older generations to express a preference for higher prices instead of tipping.
But many restaurants that tried that model had to revert back to the old way of doing things after customers and employees rebelled. Americans don’t like being told what to do – as a society, we greatly value freedom, and that includes the freedom to pay and tip as we wish.
Inflation is accepted, surcharges are not
While few, if any, customers would be enthusiastic about paying more for any reason, cost increases seem to feel especially egregious when they’re itemized. They’re hard to miss when they’re right there on the receipt in black and white. Over time, higher prices are seen as a cost of doing business. You may not be excited about paying $3 more for a haircut, but I think most people are realistic about the fact that things cost more over time, and prices can’t stay the same forever.
I suspect a lot of consumers wouldn’t even notice if prices went up over time. Do you know exactly how much your last dentist visit cost? Can you accurately recite the precise prices of eggs, milk and meat over the past three years?
Surcharges shouldn’t be the solution for struggling businesses
To me, surcharging is more of a public relations issue than an economic one. It’s a bad look. Seven out of every 10 customers say a surcharge makes them feel like the merchant does not appreciate their business, according to the American Express survey.
Plus, it’s an especially ironic time to experiment with a surcharge on credit cards, because the coronavirus has people very concerned about handling bills and coins. Amex found cash usage has fallen 16% during the pandemic, and 58% of consumers who made contactless payments reported gravitating to this technology because of virus concerns.
Sadly, many small businesses are really struggling. I don’t want to minimize that fact. But I don’t think surcharges are the way out.
Whether we’re talking COVID, health insurance or credit cards, trying to raise revenue with an itemized surcharge is a turn-off for customers, and any short-term benefit to the merchant is greatly outweighed by the longer-term consequences of offending the people who pay the bills.
Have a question about credit cards? E-mail me at email@example.com and I’d be happy to help.