Drip pricing: what is it and why is the government cracking down?

New regulations are being set in place to combat ‘drip pricing’ and its impact on consumer confidence, in order to maintain commercial integrity.

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In a bid to protect consumers from hidden fees and deceptive pricing strategies, the UK government is set to crack down on drip pricing by implementing new rules under the Digital markets, Competition, and Consumers Bill.

These new regulations aim to eliminate drip pricing. This tactic is believed to cost consumers £2.2bn each year, and it’s particularly prevalent in the entertainment, hospitality, and transport sectors.

The legislation mandates that fees must be clearly stated in the headline price or at the beginning of the shopping process, not hidden at checkout. However, optional fees (such as upsells or upgrades) will not fall under these regulations.

What is drip pricing?

Drip pricing is a deceptive sales strategy where additional fees are revealed later in the checkout process for consumers. 

In effect, drip pricing means that only a part of the overall cost is shown to the consumer when they begin a purchase process.

As individuals proceed through the buying journey, they discover unexpected charges that erode the trust they place in the business. The customer is then forced to either take on the new cost, or cancel the entire process and feel as if they have wasted time. 

The lack of upfront transparency can lead to a negative brand perception, and discourage customers from making future purchases.

From a drip to a downpour

In an official government report, drip pricing has been identified in as much as 56% of the hospitality industry; 72% of the transport and communication sectors, and over half of entertainment providers. 

The most common iteration of the unethical pricing strategy comes in the form of additional “booking fees”, for instance with cinema or train tickets, which can end up adding up to £6.45 more than the originally proposed transaction.

The rail regulator, the Office of Road and Rail (ORR), has taken action by addressing seven online third-party train ticket sellers, including The Trainline, and has expressed that these platforms are not sufficiently transparent regarding booking fees.

Alex Robertson, Chief Executive at the independent watchdog Transport Focus, states: 

“Online retailers must provide passengers with clear, accurate information upfront so they can make an informed choice.” 

Drip pricing need-to-knows

If you’re a business that applies fees at checkout that aren’t clear any earlier in the journey, then the government is effectively calling time on this practice.

Don’t wait until your hand is forced by the threat of a fine – now is the time to clean up this practice. You can choose to highlight processing fees, booking fees or similar costs early in the customer journey, so that a consumer can see the complete price they will pay. Or, consider removing these fees entirely, if your business profits can handle this.

Ultimately this is a matter of building long term trust with your target audience. The price of losing a customer’s goodwill in your brand goes far beyond the couple of pounds booking fee you’re placing at checkout, after all.

Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.

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