Drip pricing

Drip pricing is a technique used by online retailers of goods and services whereby a headline price is advertised at the beginning of the purchase process, following which additional fees, taxes or charges, which may be unavoidable, are then incrementally disclosed or "dripped". The objective of drip pricing is to gain a consumer's interest in an attractively low headline price, but the final price is not disclosed until the consumer has invested time and effort in the purchase process and made a decision to purchase. Naïve consumers will purchase based on headline price and sophisticated consumers will consider total cost when comparing offers. Drip pricing can distort competition because it can make it difficult for businesses with more transparent pricing practices to compete on a level playing field.[1][2][3]

Many jurisdictions have enacted legislation to outlaw drip pricing of fees, taxes and surcharges. For example, throughout the European Economic Area and most of the rest of Europe, retailers must include VAT in prices given to consumers. Article 22 of Directive 2011/83/EU on Consumer Rights outlaws the default selection of additional drip-priced charges such as pre-ticked boxes on websites; this is enacted in the United Kingdom under Regulation 40 of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

By industry sector

Airlines

Drip pricing of unavoidable additional charges on air fares is outlawed in the European Economic Area. Article 23 of Regulation (EC) No 1008/2008 requires that "The final price to be paid shall at all times be indicated and shall include the applicable air fare or air rate as well as all applicable taxes, and charges, surcharges and fees which are unavoidable and foreseeable at the time of publication". In the early 2010s, many budget airlines sought to circumvent this requirement by adding surcharges for the most common means of payment. For example, Ryanair surcharged £6 per passenger per flight segment to process a single debit card payment whose cost was only a few pence. Article 19 of Directive 2011/83/EU on Consumer Rights has limited such payment surcharges to "the cost borne by the trader" since 13 June 2014, but because of the prevalence of these surcharges, the United Kingdom enacted the legislation earlier than required with effect from 6 April 2013 under the Consumer Rights (Payment Surcharges) Regulations 2012.[4][5][6]

In mid-2014, the Australian Competition and Consumer Commission took legal action against Virgin Australia and Jetstar Airways in respect of drip pricing.[7][8]

After being faced with increasing regulation of the types of surcharges that may be drip-priced, airlines have created new types of drip-priced surcharges. For example Spirit Airlines from August 2010 [9] and Wizz Air from October 2012 [10] started surcharging passengers who travel with conventionally-sized hand luggage. Following Ryanair's introduction of allocated seating in February 2014, it and other UK-based airlines have been accused of seating young children far away from their parents unless a surcharge is paid. This is despite the UK's Civil Aviation Authority guidelines stating that airlines' seat allocation procedures should aim to seat children close to their parents. [11][12][13]

Event ticketing

The primary and secondary ticketing industry has faced considerable scrutiny in the United Kingdom. Many event organisers and secondary ticketing agencies, in addition to any published markup contained within the headline price, add unavoidable delivery fees for tickets later in the purchase process, even when customers print their own tickets or collect them from a box office.[14]

Hotel booking agents

Cities in many southern European countries, such as Greece, Italy and Spain, impose a city tax on guests staying in hotels. Booking agents often exclude the city tax from the quoted headline price, leaving the hotel guest to pay the tax locally upon check-out.[15][16] Article 5(1)(c) of Directive 2011/83/EU on Consumer Rights requires all taxes to be included in the total price quoted to the consumer.

References

  1. ↑ Fletcher, Amelia (21 May 2012). "Drip pricing: UK experience" (PDF). Federal Trade Commission. Office of Fair Trading. Retrieved 21 August 2015.
  2. ↑ "Drip pricing". Australian Competition and Consumer Commission. Retrieved 21 August 2015.
  3. ↑ Safi, Michael (19 June 2014). "Virgin Australia and Jetstar face legal action over 'drip pricing'". The Guardian. Retrieved 21 August 2015.
  4. ↑ "Excessive card surcharges will be banned, says Treasury". BBC. 23 December 2011. Retrieved 21 August 2015.
  5. ↑ "Airlines include debit card charges in headline price". BBC. 5 July 2012. Retrieved 21 August 2015.
  6. ↑ "End to Ryanair debit card tricks as budget airlines forced to include payment fee in ticket price". This is Money. 5 July 2012. Retrieved 21 August 2015.
  7. ↑ Han, Esther (19 June 2014). "Jetstar and Virgin taken to court for drip-pricing tactics". Sydney Morning Herald. Retrieved 21 August 2015.
  8. ↑ "ACCC takes action against Jetstar and Virgin for drip pricing practices". Australian Competition and Consumer Commission. Australian Competition and Consumer Commission. 19 June 2014. Retrieved 21 August 2015.
  9. ↑ Jones, Charisse (2010-04-07). "Spirit Airlines to charge a $20–$45 fee for carry-on bags". USA Today. Retrieved 2015-08-31.
  10. ↑ "Wizz Air launches new cabin baggage policy". Wizz Air. 3 October 2012. Retrieved 13 June 2015.
  11. ↑ McLelland, Euan (31 June 2015). "Fury over Ryanair's 'family tax': Father's anger after budget airline demands extra money so his three-year-old daughter doesn't have to sit on her own on flight from Portugal". Daily Mail. Retrieved 31 August 2015. Check date values in: |date= (help)
  12. ↑ Hayward, Stephen (25 April 2015). "Airlines charging families an extra £88 just so parents can sit with their children". Daily Mirror. Retrieved 31 August 2015.
  13. ↑ "Information on how an airline may allocate seats and what restrictions may apply". Civil Aviation Authority. Civil Aviation Authority (UK). Retrieved 31 August 2015.
  14. ↑ "Can I avoid hidden ticket charges?". Consumers' Association. Retrieved 30 August 2015.
  15. ↑ "The trick of Booking.com with city tax". TravelDailyNews International. 4 July 2014. Retrieved 31 August 2015.
  16. ↑ Smith, Oliver (1 September 2014). "Rome doubles hotel tax". The Telegraph. Retrieved 31 August 2015.

Further reading

External links

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