Rafi Mohammed

Why Should Wi-Fi Be Free?

Posted on March 13th, 2007 (0 Comments)

I’m perpetually perplexed about why pricing does not receive more attention from the business press. I believe that for most companies, focusing on their pricing is the quickest and easiest route to increased profits. So, I was pleased to see a half page article in the Sunday New York Times (March 4) by Randall Stoss titled What Starbucks Can Learn from the Movie Palace. But as I read his article, my joy rapidly turned to disappointment.

The premise of Mr. Stross’s article is that Wi-Fi at establishments like Starbucks should be free. Today, Starbucks and McDonalds charge ($6 and 2.95 per hour respectively) for Wi-Fi, Panera Bread and Schlotzsky’s Deli don’t. He thinks establishments should view Wi-Fi as overhead and not charge for its usage – arguing that every amenity a business offers does not have to be charged for. Randall makes the analogy that since establishments do not charge to use their restrooms and movie theaters do not charge an additional fee for air conditioning during warm summers, Wi-Fi should be free. Of course, charging for restrooms and air conditioning would put establishments at a competitive disadvantage (since rivals offer the amenity for free).

Next, Mr. Stross makes a common pricing faux pau. Returning to his analogy of movie theaters and air conditioning, he notes that in the 1920’s when air conditioning was introduced into movie theaters, the capital investment was $50,000 (approximately $570,000 in today’s dollars)….and cinemas did not raise their prices (at least in the short run). He intones that since the cost of providing Wi-Fi is often low, businesses should not charge for it. Remember, pricing is all about value, not cost…back in the day, consumers willingly paid high prices for pet rocks and more recently, a collector recently paid $2.35 million for a vintage baseball card. Think about those umbrella vendors in Washington.

Mr. Stross’ way of thinking about price is what exactly what results in companies having hidden profits. His logic is just not solid. Could offering free Wi-Fi be the right answer? Perhaps…but this is an outcome that should come out of a quick Value Decoder analysis.

Of course, offering free Wi-Fi adds value to your product (much like air conditioning did for movie theaters). The obvious benefit, as Mr. Stross notes, is the hope that customers will buy munchies and drinks as they surf the web. Interestingly, the typical Panera Café registers 220 Internet connect hours per week, which basically translates to 3 people being on Wi-Fi every hour a Panera Café is open. So free Wi-Fi is a meaningful yet not staggering enticement.

But why give away value if you don’t have to? Sure it may be cheap to offer Wi-Fi, but let’s focus on the value that consumers reap. Panera and Schlotsky’s are in essence offering a comfortable office or study area – why not charge for that value?

Here are some basic ideas that can help chains (e.g., Starbucks) price their Wi-Fi service.

  1. If a national chain decides to charge for Wi-Fi, prices should differ by location for the following three reasons.
    1. If a Starbucks is located across the street from a Panera Café that offers free Wi-Fi, perhaps it should consider lowering or eliminating its corporate mandated $6 per hour fee.
    1. All Starbucks are not created equal. Even if no nearby competitor is offering free Wi-Fi, not all Starbucks have loyal customers waiting in line with open wallets. Some Starbucks may need to add value by offering discounted or free Wi-Fi to draw in more customers.
    1. Why should hourly fees at a Starbuck’s in Beverly Hills be identical to those in less affluent areas?
  1. Consider using a peak/off-peak pricing strategy to better utilize fixed capacity seating. Few things are more annoying than searching for a seat in a crowded restaurant and seeing someone at a table enjoying the perks of their own mini-office - sipping coffee and surfing the web. Why not charge during peak times and discount (or offer for free) Wi-Fi during off-peak periods.

The moral of the story: the next time someone at work has a new pricing idea, take the time to question it. My number one finding at companies is that most haven’t made the effort to justify their prices…as a result, they don’t fully capture the value of their products or services.

Please feel free to send me any questions or comments. I update this blog two to three times a week – please consider signing up to be notified by e-mail of a new blog post. Thanks for taking the time to read my blog.

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