Companies are stealthily adding extra charges to the advertised prices of goods and services
You may not have heard of drip pricing — but you will almost certainly be the poorer for it.
Go online to buy a flight, a concert ticket, or even a trip to the cinema and by the time you check out, an array of extra charges and add-ons will have been “dripped” on top of the advertised price, meaning consumers pay more than they bargained for.
The airlines are obviously the masters at this. The advertised price of a flight soars after baggage fees, seating options and access to “fast track” lanes have been added. But many other retail, hospitality and service businesses are borrowing from this price-inflating playbook.
In fact, close to half of all purchases involve the addition of at least one extra (but necessary) fee, according to an independent study published this week by Alma Economics, a public policy consultancy, that analysed over 500 UK websites and apps.
It found the worst examples of drip pricing were associated with buying event tickets (93 per cent of providers), cinemas (69 per cent) and even gym memberships (60 per cent).
One gym chain pumped up prices with a mandatory joining fee that made up 39 per cent of the base price.
It’s also impossible to tell what many hidden charges are actually for, given the catch-all nature of terms like “admin fee”, “processing fee” or “service charge”.
Frankly, “extra profit” would be a more accurate description.
“If you knew the final price up front, the question is: would you have a different decision,” says Nick Spyropoulos, Alma’s managing director.
Overall, drip fees added a median 6 per cent to the advertised base price, according to Alma.
Scale this up across the wider online consumer marketplace, and these small yet annoying charges could add up to £3.5bn of additional annual spending — the last thing we need in a cost of living crisis.
Keen to crack down on the causes of inflation, the Department for Business has launched a consultation about how best to slow the drip, drip, drip of unfair pricing.
I expect they will receive a torrent of replies.
Not all the extra charges people resent having to fork out for relate to online purchases. Consider, for example, being stung by “optional” service charges in restaurants of 12.5 per cent or more. Suffice to say, few diners have the chutzpah to ask for this to be removed, even if they receive terrible service.
Ordering food via online delivery apps is another area where extra charges added at the end of the process really sticks in the craw.
And many will have gripes about Airbnb (“the price on the map looks OK, then when you go to book admin fees and cleaning charges are applied”).
Plenty of drivers rage about admin fees charged by digital parking apps. Car hire companies upselling expensive insurance add-ons at the last-minute is another thing that drives people mad.
And even if you haven’t bought a flight, simply dropping someone off at Stansted airport costs an eye-watering £7 for 15 minutes.
These extra charges are clearly something that really annoy people, but the main issue here is transparency. If material pricing information is being withheld, it makes it harder for consumers to compare the true costs, so we risk making a suboptimal purchasing decision.
From a behavioural point of view, it’s no coincidence these extra charges are dripped in very late in the process. By the time the final price is revealed, psychologically, we’re more committed to buying whatever it is, and thus more likely to proceed (albeit through gritted teeth). Abandoning our basket and starting again also costs more of our precious time.
Following the consultation, how might ministers try to remedy this?
There’s certainly scope within the existing regulations for the Competition and Markets Authority to crack down on the worst of these charges, but some argue there are too many grey areas, and the rules need to be properly updated for the digital era.
Citizens Advice, the independent consumer watchdog, wants to see “new fit-for-purpose regulations and clear obligations for retailers” when it comes to website or app design.
Few would agree that the corporate world needs another awards ceremony, but an annual event (The Drips?) to name and shame the most egregious examples is one way consumers could stage a fight back.
Nomination categories could include The Biggest Drip, Most Pointlessly Named Charge and the Droplet Award for multiple extra pricing add-ons.
And there wouldn’t be an admin fee charged for handing out the gongs.
Source: Financial Times
