Dubai: When shopping online or on your phone, have you ever wondered why the final cost of tickets or take-outs are often higher than advertised prices? This is on account of a sales technique applied by e-retailers known as ‘drip pricing’. By knowing how this works, you can use it to your financial advantage.
“It’s common for businesses, most commonly online retailers, to advertise only part of a product's price and reveal other charges later as the customer goes through the buying process,” said Ajay Dayal, a Dubai-based retail consultant.
“The widely-practiced and much-debated sales technique, ‘drip pricing’, is considered an effective marketing strategy that involves the headline price being advertised at the beginning of the purchase process, but followed by the incremental disclosure of additional fees or charges.”
Drip pricing is considered controversial because it can distort competition by making it difficult for businesses with more transparent pricing practices to compete on a level playing field
What is the point or objective of ‘drip pricing’?
Dayal explained that the objective of drip pricing, also known as ‘partitioned’ or ‘shrouded’ pricing, is to gain a shopper’s interest in a low headline price without the true final price being disclosed until he or she is too far down the purchase process to back out from his or her decision to purchase.
Abu Dhabi-based retail consultant Maddy Ivan, explained that drip pricing is also considered controversial because it can distort competition by making it difficult for businesses with more transparent pricing practices to compete on a level playing field.
“This is why some companies avoid drip pricing techniques because they fear consumers will misinterpret oscillating prices as manipulation. At the end of the day, shoppers decide whether to make a purchase. It's up to the business to set the price they are willing to pay to meet their need,” he added.
What other industries practice this strategy?
While online retailers, in particular, adjust the price of products according to competitors and sales goals, ‘drip pricing’ is also a common practice in several industries such as hospitality, tourism, sports and entertainment.
“Each industry takes a slightly different approach to drip pricing based on its customer needs and the demand for the product. Currently, it’s the hospitality and airline industries that operate with this pricing model, particularly those who make use of mobile applications, surveys show,” Dayal explained.
“When high demand coincides with short supply, then hotels and airlines charge more for their respective rooms or tickets through their apps. After seeing success of this in selling rooms and seats, many other verticals within the travel and tourism industry adopted the practice.”
On the other hand, drip pricing is not a strategy that is dependent on the behavior of every shopper, and that makes it less than ideal for retailers. As with drip pricing, additional costs (often mandatory costs such as fees and taxes) are disclosed one by one, retailers face the rise of shoppers dropping out.
Drip pricing has caught eye of global regulators
The New York Times recently reported that regulators in the US 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 US Federal Trade Commission made the following statement in 2022: “By hiding the total price, these junk fees make it harder for consumers to shop for the best product or service and punish businesses who are honest up front.”
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.”
How does one work around surge pricing strategies
So as more businesses adopt such pricing strategies, you may see more hidden costs during different seasons of spending. “It might sound like bad news for shoppers, but you can still find deals even with drip pricing applied, but you need to constantly be hunting for bargains though,” Ivan added.
• Know if the portal you’re dealing with practices such pricing strategy
“Many will tell you on their website that they use drip or dynamic pricing. So do a search for either ‘drip pricing’, ‘surge pricing’, ‘dynamic pricing’, ‘time-based pricing’, or simply ‘pricing’ on their websites, which are mandated to detail how their pricing strategy works.”
• Know which purchases you can afford to postpone when costs rise
If the hidden costs make you wary of going ahead with your purchases, you always have the choice to avoid or re-schedule the purchases, Dayal added. “Also, the fees may not be there when buying at outlets directly, so try that. Regardless, it’s key to watch out for falsely advertised offers,” Ivan said.
Bottom line?
A 2021 study in the journal ‘Marketing Science’ found that shoppers tend to make suboptimal decisions under these ‘drip pricing’ situations, that is, when hidden fees are tacked on throughout the checkout process.
“Anyone who has shopped for airfare on a budget airline or on a lookout for deals on hotel rooms knows exactly how this ‘drip pricing’ plays out. Yet what’s surprising is how unwilling customers are to compare alternatives, even after the final price had risen,” added Dayal.
“Shoppers tend to compare initial prices across competitors, which are low, rather than the higher final price, and perceive high search costs associated with starting their decision process over, and they think they will save less money than they actually will.
“Basically, shoppers tend to get to the final checkout screen and grudgingly accept whatever fees have been added on. They assume it will be too much hassle to start over and find another option, even if doing so would save them money.”
Both Dayal and Ivan agree that a key takeaway for a shopper coming across drip pricing strategies is to take time to review the bill with every purchase. “If you see objectionable fees, don't be shy about questioning them. In many cases, unexpected fees will be removed for those who complain. Avoiding fees whenever possible and objecting to those you don't expect can help you save money,” added Ivan.
