Don’t we all hate it when we see a hotel room, plane ticket, or concert ticket at an attractive price, only to be hit with a million extra fees during checkout? Convenience fees, payment processing fees, because-we-can fees, and various fuck-you fees makes a miserable shopping for customers. That delicious $12 burger you found on the food delivery app? $40 after various fees, delivery, and tip. And what’s this? An “e-ticket delivery fee”? Receiving your football game tickets via email now comes with a price tag.
This controversial pricing strategy is called “drip pricing”. Recently, Choice Hotel International found itself in hot water with the Colorado Attorney General’s office for its use of this strategy.
Drip pricing strategies involve gradually revealing additional fees and charges to consumers as they progress through the booking or purchasing process. This tactic is heavily employed in the hospitality industry, and Choice Hotel International was accused of misleading customers regarding pricing. As a result, it becomes difficult for customers to figure out the true cost of a service or product.
It’s quite easy to understand why businesses use drip pricing. Offering a low initial price can grab the interest of price-focused customers. It also makes the business appear more affordable than its competitors, driving more traffic to their websites. Ultimately, a customer who is already halfway through the checkout process is more likely to accept extra fees and buy, rather than someone who sees with a higher initial price before even starting the checkout process.
Of course, there are downsides. Drip pricing negatively affects a business’s reputation (I don’t think I know anyone who has a positive opinion of companies that resell sports event tickets), and it causes frustration for customers. But why aren’t transparent companies more successful? Unfortunately, some studies have shown that customers would rather pay extra fees due to drip pricing than face an initially more expensive product with no hidden charges.
In response to the investigation, Choice Hotel International agreed to make important changes, including displaying all the fees and final prices in their advertisements. They now must provide accurate pricing information to online travel agencies and other third-party reservation services. This sends a clear message that regulators are looking at this practice and taking action to protect consumers.
We can’t predict whether this marks the beginning of the end for drip pricing or if we’ll see even more “convenience fees” and “order processing fees” on every purchase we make. Ultimately, it’s essential, as consumers, to understand these practices to make the best possible decisions. As entrepreneurs, we must also understand what it means to use drip pricing, its advantages but also the risks on reputation, customer satisfaction, and the perspective of regulators on this strategy.