How to charge for cream cheese

On Facebook, a friend of mine started a discussion about charging extra for cream cheese. It started with a simple status. Here’s how it went down:

Julie’s status: Never understand why people are surprised we charge extra for cream cheese packets. It’s expensive. Supplier doesn’t give them to us, so…?

My 1st comment: You pay for toilet paper and running water too but don’t charge extra for that, right? It’s all about expectations. So is the cost of the cream cheese more than the cost of potentially losing a customer? For me, it wouldn’t be.

Julie’s 1st comment reply: The bagels are homemade, good, and priced very reasonably. We could double the price and offer the cream cheese for free, but that’s not really fair, is it?

The problem is that there are certain people that tend to nickel and dime eating establishments to death. Piles of napkins and crackers and salt packets and extra this and such and such on the side – at some point, a fee needs to be charged.

This doesn’t even touch on credit card fees and what it does when people want to buy a low priced item with a card. So, yeah, we pay for water and all that, and these costs are part of the total price, which leaves us with the ever fun scene of people upset about the price because it’s “just an eclair.” At what point do say, “This is the price,” and let a customer walk?

My 2nd comment reply: Yeah, I understand why a business might be justified in doing it, and customers probably shouldn’t complain. But if I owned the business, I wouldn’t charge for most of that stuff, and as a customer, I usually go where they don’t charge for that stuff.

That’s all I meant. It’s a choice everyone has to make, business owner or customer.

Julie’s 2nd and 3rd comment replies: If you owned a business and didn’t charge for that “stuff”, you wouldn’t be in business for very long. Those expenses have to be covered somehow, whether in the cost and everyone pays, or on their own and the individual customer pays. It isn’t free.

The places where they don’t charge for that stuff…do. It’s in the cost somewhere. If you’re in business, you’re not handing out free stuff. The cost is elsewhere. Otherwise you’re not in business. You’re in bankruptcy.

My 3rd comment reply (I replied to her second reply before I saw her third): You’re absolutely right. I’d charge more overall to keep the picky customers away (like me) and over deliver on all the extras. I think that’s the best way businesses can get ahead: customer service.

Most people would rather pay a couple bucks extra to get free stuff, and the ones who wouldn’t aren’t great for business anyway, like you said. Again, expectations. It’s micro-socialism. :>)

After that, I posted a status posing the issue and seeking friends’ opinions, both as customers and business owners. Some of the comments went in the “I’d quit going to that place” direction, so Julie followed up again with an entire blog post:

>> The $4.50 eclair <<

^ Read it. ^

Okay, Julie’s totally right that someone’s paying for the cream cheese. It’s not truly free. Free, in the offline world at least, usually doesn’t really exist. Let’s get that off the table right now.

Also, Julie’s totally right that some customers aren’t worth keeping. I like the idea of firing some customers actually.

But here are three options I might suggest for the business owner to cut the complaints:

My favorite suggestion: Charge $1.50 and offer a $.75 discount for customers who don’t want the cream cheese. Discounts are way, way better for customer perception than extra charges.

Gas stations do this all the time. You pay, say, five cents less per gallon if you pay with cash. They could have instead made you pay five cents more if you use a card, but again… who wants the “extra” charges? See, the actual amount exchanged is the exact same in both cases, but the perception is totally different.

Lesson: It’s all about the perception – go with discounts over charges.

My least favorite suggestion: Charge $1.00 or $1.25 for the bagel and make up the difference on the cream cheese (maybe add a bulk discount for bagels only).

Most people think of the cream cheese as a topping, a bonus, not a product by itself, even if that’s what the actual costs look like (and even if it’s the cream cheese, not the bagel, that we really love). So by shifting the cost percentages around, the “extra” seems less threatening.

Lesson: Price based on (perceived) value given, not (actual) cost to give.

My good-in-theory-but-probably-wouldn’t-work-unless-the-business-was-super-cool-about-how-they-pulled-it-off idea: Do exactly what you’re doing now, $.75 for the bagel and $.75 extra for the cream cheese, but display a huge sign out front that says, “We charge for cream cheese so you can get a freshly baked bagel for $.75.” <<Something like that anyway.

You just want to stay away from “hidden/surprise” charges. I shouldn’t get up to the counter and then find out it’s going to cost an extra $.75 for cream cheese. That’s when the complaining starts… because I feel like it’s sneaky (whether it really is or not). To me, it’s like the $2 item on eBay with $100 shipping and handling (though that’s an extreme case).

Lesson: Don’t surprise customers with costs.

In general, I think businesses try to cut costs too much. They’re cynical. Instead, they should focus on providing more value.

Also, from the customer’s perspective, I don’t really care how much it costs the business to get it to me. All I care about is how much it costs me and how much value I get out of it.

So if you’re trying to sell me something, don’t justify the price based on the business’s costs – justify it based on the value I’ll get out of it.

And one last thing: I make fun of some shipping and handling charges too. It’s all about perception. Who wants to start paying for S/H from Zappos now that it’s been “free”?

Thanks so much, Julie, for bringing up the topic and sharing about it. I love hearing the other perspective.

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