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Have you ever seen an advertisement where the price seemed too good to be true? Have you then later discovered that the advertised price conveniently left out booking fees, transaction costs and other hidden fees, making the cost much higher than the stated price? This practice is drip pricing. This article will outline what drip pricing is and how people use it. It will also discuss whether drip pricing is legal in New Zealand.

What is Drip Pricing?

When businesses promote a product using drip pricing, the advertised price is not the whole and final price. Instead, other mandatory fees are gradually added to the advertised price through the buying process. Consequently, this makes the overall price more expensive than advertised. In addition, businesses add these fees at various points through the purchase process. Therefore, it is challenging to determine the overall price until the last stage. As a result, drip pricing can increase costs for consumers as they end up paying more than they believed they would have to.

When Do You Use Drip Pricing?

Drip pricing is commonly used when advertising air fares, vehicles, rental cars and technology services. For example, in the advertisement for vehicles, the promotional material conveniently leaves out the cost of registration, which can be hundreds of dollars. Additionally, they may leave out the cost of credit or debit card fees. This makes it challenging to compare the overall costs of the cars, as these additional fees may vary significantly, and can significantly alter the lower displayed price. 

What are Some Fees Commonly Added Through Drip Pricing?

  • Booking fees: these are usually the primary source of revenue for ticketing companies. They are sometimes also known as service or handling fees. These are largely unavoidable. 
  • Levies: these usually are venue dependent. Some venues will charge additional fees, like for earthquake restoration.
  • Delivery fees: you may need to pay an additional fee if you have tickets or products couriered to you. 
  • Payment processing fees: these usually come with using a debit or credit card to pay online. It is hard to avoid these fees. They are usually around 2-3%.
  • GST: sometimes excluded from the advertised price. 

Not all costs come under the banner of drip pricing. For instance, optional extras when you have the option of opting in and out do not constitute drip pricing. Examples of this include upgrading a computer part for extra storage or purchasing event merchandise with a ticket.

Why Do Companies Use Drip Pricing?

Companies use drip pricing for several reasons. First, when businesses leave some fees out of the advertised price, the price seems lower. Therefore, people are more likely to buy the goods. Price is the critical factor people consider when comparing goods, and drip pricing can distort this. Additionally, drip pricing makes it harder for customers to shop around and find a better deal. This is because they only know the extent of the total price at the end of the transaction. Therefore, it is much more challenging to compare full-price offers. Additionally, by the time the transaction is almost complete, most people will want to follow through with the transaction, so they do not have to do it all again later.

Is Drip Pricing Legal in New Zealand?

Drip pricing is currently legal in New Zealand. However, while it may be legal, businesses must ensure that they obey the Fair Trading Act, particularly making sure that they do not engage in false advertising or misrepresentation. For example, advertising a price with no reference to other fees is likely to breach the Act. However, advertising a price and noting that there will be additional fees, without explaining the extent and amount of these fees, are less likely to breach obligations under the Act. 

Is Drip Pricing Legal Worldwide?

There are several different approaches taken to drip pricing in other countries. Under Australian consumer law, businesses are not allowed to advertise a partial price without prominently advertising the total amount that the customer must pay. In the European Union, businesses must disclose the total cost and any additional fees. There are also bans on charging additional fees for credit and debit card transactions. In the United Kingdom, it is illegal to give insufficient information to consumers about pricing, which leads them to make a different decision. 

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Key Takeaways

Drip pricing is commonly used in promotional material of goods to make products more appealing as they seem cheaper. However, it has several negative consequences for consumers who often pay a higher price than they otherwise would. Additionally, drip pricing is technically legal in New Zealand. However, if you hide additional charges in advertising, it may become illegal. 

If you need help understanding how drip pricing works, our experienced e-commerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

Is drip pricing legal overseas? 

Drip pricing is not legal in Australia, the European Union or the United Kingdom. These countries have banned drip pricing or misleading advertising in various forms. 

Can you only use drip pricing when purchasing airline tickets?

No, you can use drip pricing in the advertising of any product. It is commonly used for airline tickets, technology, vehicles and event tickets. It is also commonly used when purchasing online goods. 

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