One of the most common complaints among fellow business-travel road warriors is the high cost of Wi-Fi outside the friendly confines of our offices. It’s a topic that comes up continually in hotel lobbies and airport terminals as we struggle to stay connected with the flow of business. We all go through gut-wrenching internal debates about whether or not we should expense the $14.99 for a day of Internet access just so we can sync email and maybe Skype the kids before bed. Why is it—we often wonder—that Wi-Fi is free at Starbucks and McDonald’s, yet we must put up outrageous charges where we need it most—where we are already spending hundreds of dollars for hotel rooms or plane tickets? A recent article in Slate has gained some attention in suggesting that the time has come to free up Wi-Fi at every business. While that would be nice, the law of supply and demand won’t change things, until someone recognizes the opportunity for Marketing with Meaning.
In Slate, author Farhad Manjoo tells the story of how Starbucks was recently pressured to offer free Wi-Fi service because a plethora of its competitors have provided the free access—ranging from McDonald’s to nearly every corner deli and independent coffee spot. He writes that many mid- and low-budget hotel chains have begun to offer free Wi-Fi, including Best Western, Comfort Inn, and Holiday Inn. According to Manjoo:
“The sooner that hotels, airports, convention centers, and other similar places realize this, the happier they’ll make their customers.”
Sounds great, but don’t hold your breath. Just because people want, nay, need something for free does not mean that they will get it. The real purpose of my post today is to remind us that the simple economics of supply and demand come before any Wi-Fi routers go up.
In general economic terms, free services are most likely to occur when three rules apply: (1) the cost to provide the services is low; (2) consumers specifically desire the free services; and (3) and competition is also offering them for free. For example, restaurants provide free salt, pepper, and sugar at your table. The cost of these condiments is very low, people want or need access to them while eating, and because so many restaurants provide them for free it would be ridiculous to start charging. In the hotel market, we similarly see free shampoo, soap, in-room coffeemakers, turndown service, and wake-up calls.
Wi-Fi passes these tests in some cases. In the U.S. at least, Wi-Fi is very cheap to install and provide and it is definitely a service that consumers desire. However, competition is where things get dicey. Restaurants and coffee shops feel the competitive pressure because people have a pretty broad choice of where to sit down and spend their money. One could literally drive by a dozen spots in less than five minutes looking for those that have a “Free Wi-Fi” sign in the window. The same goes for those mid- and low-budget hotel chains, as they are frequently huddled together along the same interstate exit.
But this competitive shopping process is very different for high-end hotels and airports. The competitive options for business travelers are much more restricted in these markets, and Econ 101 tells us that less competition means monopoly-like “rents” can go to the seller. Yep, it’s unfair and economically inefficient when Delta charges $9.99 for Wi-Fi on a one-hour flight, or when your $400-a-night W Hotel makes you pay $19.99 for 24 hours of its horribly slow Net access. But these services become huge moneymakers when you are stuck with few options.
The other free market “failure” here is that most end users of high-end hotels and airfare are not the ones actually paying for the Wi-Fi access—it’s actually the employer who gets stuck with the bill when the expense report is turned in. This is similar to the reason our health insurance costs keep going up—the end patient is agreeing to (or even asking for) medical services that he or she never pays for. Now, just because all three of these guidelines are in effect does not mean that companies will choose to offer free benefits; but it does mean that this becomes a true marketing choice and investment—and I believe this can be one of the most meaningful marketing choices a brand can make.
There is one great airline example about how bucking the charging trend can be a marketing win. Charging for checked baggage is an interesting case where a reduction in competition led companies to cut back on a service that everyone enjoyed for free for years. The few big players—Delta, Continental, American, and others—are now reaping big bucks thanks to this shift in the market. In 2009 they collected $13.5 billion in “ancillary services fees”—which mainly consists of new baggage fees.
But building on its Brand Purpose of “Democratizing Air Travel,” Southwest Airlines saw a huge opportunity in this shift. It was the one major airline that refused to charge its customers for up to two pieces of checked luggage. Not only did it keep its free baggage benefit, but it created a marketing campaign around “Bags Fly Free.” The results are pretty amazing: Southwest gave up an estimated $300 million in profit by forgoing the fees, but its differentiated service allowed the company to gain an additional 1% share of the market, which translated into $900 million in additional revenue—not to mention earning it ongoing customer trust and brand loyalty at a moment of truth. This was a marketing investment that clearly paid off.
What I find interesting is that it may be that only those services that “violate” my three rules above are noticeable by consumers and should actually be considered marketing investments. When you and all of your competitors offer something it is no longer differentiated, meaningful marketing, but rather just a cost of doing business. At what point does Wi-Fi at a restaurant just become the equivalent of ketchup?
Wi-Fi on airlines or high-end hotels is far from destined to be free, but it does offer an opportunity for brands to stand out by offering it. I am starting to see movements in this direction. For example, last week Sheraton offered me free (but slow) Wi-Fi because I am a Gold Starwood Points member. And Delta provides free Wi-Fi in its Sky Club lounges.
Perhaps there is an opportunity for an airline or hotel chain to differentiate by offering free Wi-Fi credits or codes directly to the company procurement and travel managers who are paying for accommodations at the end of the day. Imagine a loyalty campaign or points program targeting these key decision makers. Working through a travel provider such as American Express, Delta, or the W Hotel could offer free Wi-Fi to heavy corporate buyers. This could help break through the clutter, reward the most valuable end customers, and win a nudge of business when prices are about the same. Another “scale” option is to partner with a company such as Orbitz or Travelocity to show people that free Wi-Fi is, say, a $14.99 value when the price search results appear. A customer might decide to pay an extra $10 for a hotel room when he knows the $14.99 Wi-Fi comes free. And remember, the incremental cost of a hotel offering this benefit is near $0.
You might find it useful to use this post to trigger a thinking exercise on your brand. What is a service that your customers will appreciate, that has reasonably low costs to execute, and that your competition isn’t offering yet? You might just uncover a powerful Meaningful Marketing idea.