DRIP PRICING (Syllabus: GS Paper 3 – Economy)

Context: The Centre recently warned about “drip pricing”, saying it can surprise consumers with “hidden charges” and advised them to seek assistance if they encounter such surges in charges on a product's MRP (maximum retail price).

Drip Pricing

• About: It is a strategy where only a portion of an item's cost is initially displayed, with the full amount revealed later during the purchase process.
• Withholding Charges: Charges often involve withholding essential fees like local taxes or booking charges, or omitting necessary add-ons like internet access or amenities, which may be required for product or service usage.
• Misleading Headline Prices: The price advertised, whether in print, email, or on a website (referred to as the “headline price”), may not accurately reflect the final cost to the consumer.
• Lower Initial Price: Companies prefer to present a lower initial price and later disclose mandatory fees to avoid alarming customers with unexpectedly high prices.
• Impact on Transparency: This technique can penalize sellers who are transparent with their pricing, as it obscures the true cost of a product or service and makes it harder for consumers to make informed decisions.
• Example of Drip Pricing: A classic example is the cost of an airplane ticket, which may not include baggage fees until later in the booking process.

How does it work?

• Psychological Commitment: The rationale for employing drip pricing is that shoppers who are invested in the shopping process may commit to a purchase once additional fees are revealed, even if they had not initially factored in.
• Reduced Shopping Friction: Businesses might employ a drip pricing tactic to attract customers into initiating the purchasing process, banking on the likelihood that once started, customers may be less inclined to restart their search upon discovering additional costs.