Drip Pricing

Drip Pricing

What is Drip Pricing?

A price is quoted. Then, at various stages of the sale completion, additional charges are added, or dripped, to the total. The final price is a fair bit higher than the original price; this is drip pricing.

At the time of writing, this practice is partly outlawed in the European Union where regulators have mandated that taxes, fees and surcharges may not be dripped. This does not wholly stop drip pricing.

The mechanics of Drip Pricing

Drip pricing is most often seen during online purchases. A customer’s interest is acquired through a low price. When they continue their purchase additional fees get added e.g. processing fees, baggage fees, insurance fees, taxes, parking costs, handling costs, postage & packing, delivery charges. Sometimes, additional fees are even related to essential items to the service or product.

This usually ends up with a price higher than advertised and more expensive than the customer was expecting. But, by this stage, many customers have invested so much time in the shopping process that they give in to the drip pricing scam. Additionally, many customers also think there is no point in going elsewhere as they believe this might be normal practice. https://pubsonline.informs.org/doi/abs/10.1287/mksc.2019.1207

Where is Drip Pricing most often seen?

Some airline companies use this technique and reduce the price of a seat to the barest minimum and then charge for other features such as checked-in luggage, seat location, priority boarding, trip insurance, luggage insurance, meal and drinks

And when you do land after a long journey, car rental companies are known to have a go as well, most notably with insurance. Avis and Budget recently lost a case against them, so we are making progress.

Holiday and accommodation firms are also areas to watch out for.

The regulators’ view

Drip pricing has come under a lot of pressure from governments and other regulatory bodies as it is ethically suspicious.

Sometimes it is unavoidable

For online businesses selling to distant or international customers, it is almost impossible not to drip as some of the added costs cannot be anticipated or known e.g. shipping and duty taxes for example. Also, variations from region to region mainly due to regional taxes and highly variable shipping prices must be considered.

Can you imagine?

Imagine popping into the pub for a pint. The advertised price is £3.50 and then additional charges are announced e.g. the glass, a seat, the use of the toilets etc. The total comes to £4.50. It would be bonkers…who would put up with it? We wouldn’t tolerate it in the pub situation and we shouldn’t tolerate it elsewhere.

I am a partner at Succession Plus. We are specialists in providing proactive, focused and strategic advice for SME owners to help them manage strategic Business Succession and Exit Planning. I am enjoying a career that has embraced product and service businesses at all stages of their journey. I have worked in technology, telecoms, consumer electronics, payments, media, and publishing.

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