If you have ever shopped online, you will likely have tried to purchase a cheap item only to find out that the price has conveniently left out booking fees, transaction costs, service costs, and other hidden fees. This practice is known as drip pricing. If you run an online store or sell goods online, you must be aware of your obligations regarding drip pricing and the consequences that misleading advertising could have for your business. This article will outline:
- what drip pricing is;
- when stores use drip pricing;
- the effects of drip pricing; and
- the legality of drip pricing.
What is Drip Pricing?
Drip pricing occurs when an advertised price is inaccurate because it has left out other fees. Often, sellers may bury additional costs in fine print or only reveal them once the buying process has begun. These fees include:
- booking fees;
- service fees;
- credit card or transaction fees;
- print your own ticket fees; and
- shipping fees.
These fees can range from a few dollars to hundreds on top of the advertised price.
When is Drip Pricing Used?
Price is a significant factor in a consumer’s decision whether to purchase a product. Businesses generally use drip pricing to get consumers to buy goods, as customers typically become committed to a good as the purchasing process occurs. By adding the extra fees later, businesses naturally hope that the consumer will commit to the product and buy it even if additional fees are attached.
Drip pricing is commonly used in the sale of some goods and services, including:
- flight tickets;
- vehicles;
- event tickets;
- rental cars; and
- technology services.
Effects of Drip Pricing
Drip pricing can be incredibly frustrating for consumers and even prevent them from purchasing products if they are irritated or unwilling to pay the extra fees. This practice can be misleading for customers and makes it more challenging for them to fairly compare the price of goods. They do not know what costs you may later reveal, so they are basing their decision on the inaccurate lower price. Therefore, consumers may end up spending more than they had initially intended because they could not compare product prices fairly.
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Is Drip Pricing Illegal?
Drip pricing is explicitly illegal in several countries, including Australia and the European Union. While drip pricing may not expressly be unlawful in New Zealand, it generally will not win you any favour with consumers. Many people find it very frustrating to have costs added throughout the purchasing process, making them less likely to purchase a good. It may make your business seem untrustworthy, making customers unlikely to buy from you.
Additionally, there is a high likelihood that drip pricing will eventually be made illegal, so you should not leave your business structure to rest entirely on drip pricing practices, or you may face challenges later down the road.
Legal Considerations
Furthermore, the Fair Trading Act prohibits sellers from making misleading representations about the price of a good. While drip pricing is not a breach of the Act in all cases, the two often overlap.
Therefore, you should be very careful if your advertising practices may mislead customers. It is better to be more cautious than you need to be, as penalties for breaching the Fair Trading Act can be up to $200,000 for an individual or $600,000 for a business.
Key Takeaways
Drip pricing is a practice that causes significant challenges for consumers, causing them to have to pay more and decreasing their ability to compare the price of products fairly. While drip pricing is not strictly illegal by itself, some drip pricing practices may breach the Fair Trading Act. This includes failing to advertise the existence of additional fees. The consequences of breaching the Fair Trading Act or falsely advertising are significant, so you should be cautious of drip pricing practices.
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Frequently Asked Questions
Yes, though it is more commonly used to sell goods like airfares, ticket sales, cars, and technology services.
No, but it is illegal in Australia and the European Union. Some drip pricing practices will be unlawful under the Fair Trading Act.
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