Ancillary Fees' Impact on E-Commerce Order Frequency and Abandoned Cart
In recent years organizations, including those in the e-commerce industry, have begun using separate fees that are charged in addition to the base price of a product. These ancillary fees have become a new and profitable revenue stream for the firms utilizing them (Finsterwalder, Kuppelwieser, Simpson, & Tuzovic, 2014; Montana, 2014; Smith, 2015). Research has shown ancillary fees can both positively and negatively impact revenue when charged or removed as a component of price (Dresner & Scotti, 2015; Fay, Lewis, & Singh, 2006; Gregory, Roe, & Repetti, 2015; Hamilton & Srivastava, 2009; Hanson, 2015; Lewis, 2006).
This research used the two-part tariff (Oi, 1971), adjustment and anchoring theory (Tversky & Kahneman, 1974), and theory of cognitive dissonance (Festinger, 1957) to expand the knowledge of consumer purchase decisions where ancillary fees are charged. The method is an experiment on GolfNow consumers, the leading e-commerce tee time provider and golf course technology and solutions company globally (GolfNow, 2016a). This research used two studies to assess the causal relationship between ancillary fees and consumer purchase behavior.
Study 1 isolated 2,100 consumers and split them into two random groups (test and control), waiving all future convenience fees for the test group. Study 2 focused on the final step of the transaction where convenience fees were introduced. If consumers demonstrated intent to abandon, they were randomly split into four different groups. One group received a pop-up asking them to complete the purchase with no incentive, the second group was offered a fee waiver, the third group was offered a percentage discount equaling the cost of fees, and the fourth group was the control. Study 1 demonstrated consumers will increase order frequency when ancillary fees are removed, no matter their age or gender. Study 2 determined the fee waiver yielded a lower abandonment rate than the control and the percentage discount groups. This research concludes removing ancillary fees in e-commerce will drive more demand no matter age or gender. Furthermore, firms can mitigate cart abandonment by removing ancillary fees at checkout.