‘Drip Pricing’ has the attention of regulators, consumers as inflation lingers

How many times have you heard: If a deal is too good to be true, it probably is. And nowhere is that more apparent than when companies practice “drip pricing,” the practice of luring the consumer in with a spectacular bargain, only to tack on fees and other hidden costs.

Remember that $35 concert ticket that wound up costing $50 or more? You get the idea. The term first surfaced in 2009 but the practice had been around for decades. It’s especially widespread on e-commerce sites, but COVID saw it spread to restaurants and elsewhere.

The New York Times recently reported that regulators in the U.S. and elsewhere have begun scrutinizing the practice with an eye toward reining it in. Britain considered legislation that would have prevented airlines from disclosing fees at the last minute while Canada stiffened penalties for the practice. The U.S. Federal Trade Commission made the following statement in 2022:

Last November, the FTC proposed a rule that would prohibit “unfair or deceptive practices relating to fees for good or services, specifically misrepresenting the total costs of goods and services by omitting mandatory fees from advertised prices and misrepresenting the nature and purpose of fees.”

Junk fees pile up with drip pricing

The FTC estimates drip pricing adds 30% to 40% to costs. In the airline industry alone, the Transportation Department found baggage and reservation fees accounted for $6 billion in revenue. The Consumer Financial Protection found the nation’s largest banks pulled in $15 billion from overdraft fees while the major credit card companies made $14 billion in late fees.

The worst offender, Consumers Union officials said in testimony before the FTC last year, was the cable television industry, which imposed a 24% surcharge on the advertised price in 2019, costing the average customer $450 annually.

Even though consumers may be annoyed when they get to final checkout, a psychological phenomenon known as completion bias may come into play. So why does the pricing strategy remain so widespread?

Because it’s lucrative, noted Michael. “Fees collected by live event ticketing platforms end up distributed along the live event ‘food chain,’ including the venue, the artist and the platform itself,” he noted. “Artists work with ticketing platforms that consumers despise because they get a cut of those fees, without catching heat for charging them.

“Interestingly, drip pricing can also be used to influence consumer behavior. In a grocery context, Amazon leverages drip pricing in its Amazon Fresh grocery delivery service by adding both a driver tip and a delivery charge at checkout. However, the delivery charge can be waived if the consumer places a large enough order size, which incentivizes shoppers to increase basket size.”