You might not know what "drip pricing" is, but if you've ever shopped online, chances are you've experienced it. Here's what it is, and why the fact that the consumer regulator is about to crack down on abuses of it is good news.
Water picture from Shutterstock
Rod Sims, the chairman of the Australian Competition and Consumer Commission (ACCC), offered a succinct definition of drip pricing during a speech outlining the main compliance goals for the ACCC today:
Drip pricing involves the incremental disclosure of fees and charges over an online booking process. It causes both competition and consumer detriment. Consumers see a ‘headline’ price advertised at the beginning of the booking process but when they progress to the payment phase, additional fees and charges have been added. Consumers purchasing airfares or sporting event tickets are all too familiar with this practice. Drip pricing involves a lack of transparency which may mislead consumers, and it can also make it difficult for businesses to compete on a level playing field.
It's worth pointing out that airlines and other businesses are already obliged to include compulsory fees and charges (such as airport taxes) in prices quoted to consumers. It has been illegal to display "component pricing" since 2009. However, that doesn't stop airlines throwing on additional charges: baggage, seat selection, insurance and credit card fees are the most obvious examples.
In many cases these are automatically 'ticked' and you have to specifically remove them. Ticketing agencies are another obvious offender (is there anything more annoying than being charged a fee to print your own ticket?)
Another drip pricing offender is credit card fees. Businesses aren't supposed to charge fees for processing credit cards that are wildly excessive -- they can recover costs, but they aren't supposed to make a profit. However, while that law came into place in March last year, we haven't yet seen any changes to the fees charged by the major airlines.
The ACCC says that drip pricing is in its sights, and that we can expect to see "enforcement action" in this area shortly. That doesn't mean that drip pricing will disappear altogether -- there's a legitimate need to (for instance) choose to fly without luggage and save some money. But if we could see options deselected by default, rather than automatically added, that alone would be a big improvement.