“Drip pricing” turns payment into a nasty surprise

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As if inflation weren’t bad enough, consumers are slammed with drip pricing, the sneaky extra fees that are added just before a purchase closes.

You’ve no doubt familiarized yourself with the exercise: airlines, hotels, concert ticket sellers, telecommunications companies and others will advertise a lower price, but then reveal mandatory additional charges often after buyers will have invested and will be about to click “buy now”. button. It’s an unfair practice, but unfortunately nothing new. And it’s becoming even more prevalent as companies look for quieter, less visible ways to pass higher costs onto consumers.

Besides being incredibly frustrating, the drip price seems deceiving, despite being perfectly legal in many cases. It’s impossible to shop around to find the best deal when you don’t know what the real cost is. Studies show that the tactic exploits cognitive biases: people are excited about the initial offer and don’t want to bother to start over or have to re-enter all of their information. They end up spending more than they would have if they had known the true cost upfront.

So what can you do to defend yourself? First of all, be aware of the latest tricks in order to avoid falling into the trap. Second, don’t give up. You can always exercise your consumer power by walking away or protesting charges that you consider particularly onerous.

The airline industry pioneered drip pricing – it prefers to call it “unbundling” – beginning with the rise of flight aggregator websites in the early 2000s. airlines regularly charge fees for checked baggage or seat selection. Since the pandemic, things have gotten worse. Many carriers have imposed or increased fuel surcharges, and tickets purchased with mileage awards have become more expensive.

For those who recently received a voucher for a delayed or canceled flight, prepare to be particularly outraged. According to Brian Kelly, founder of travel website The Points Guy, you’ll be told you need to call an agent to redeem the voucher and then pay a booking fee over the phone.

The hotel business is not much better. Guests have been complaining for years about resort fees, which are daily charges for hotel amenities and are usually added after you’ve already committed to paying a particular price for a room. The most annoying part of resort fees these days is that guests are charged for things they can’t even use, either due to pandemic restrictions (like limited gym access of the hotel), or because of a lack of staff. Also beware of extra charges imposed for Covid cleaning. Hotels have been slow to roll them back, although they may no longer be taking the same precautions.

It goes way beyond travel. At home, watch your cable, internet and phone bills. Telecommunications companies were cited as the worst industry for hidden charges, with 70% of respondents to a 2018 Consumer Reports survey saying they had experienced an unexpected or hidden charge from a telecommunications company in the previous two years .

Cable companies are notorious for luring consumers in with promotional rates, but then adding charges for miscellaneous things is where they bury their price increases. Companies were inventing new fees and increasing those that already existed before inflation, and will only continue to do so, says Jonathan Schwantes, senior policy adviser for Consumer Reports, who focuses on telecommunications and competition issues.

Merchants are also increasingly charging consumers a checkout fee for credit card purchases. Visa and Mastercard have recently increased some of the fees they charge retailers, and instead of swallowing them or adding them to their prices, some are charging a surcharge. About 10 years ago, the ban on credit card surcharges (where merchants pass on fees charged by payment networks such as Visa and Mastercard to consumers) was lifted, but it wasn’t until more recently that states have followed suit, opening up the option to retailers.

In addition to drip pricing, consumers should pay attention to dynamic pricing. This is where you think you’ll save money by agreeing to “subscribe and save” for autoships on Amazon, but check the fine print: you’re agreeing to subscribe at a fluctuating price, not a fixed one. Sure, Amazon will send you a pre-delivery notification to confirm you’re okay with the price, but many consumers say they missed the alert.

Finally, if you end up paying more than expected – whether it’s for a tube of toothpaste or a ticket to Rome – you don’t have to accept it. The Consumer Reports study showed that only 30% of people who were stuck with hidden charges fought against it. But more than 65% of those who complained were successful in getting a refund or waiver. With your money not going as far as it used to, it’s even more vital to pay what you’ve been promised.

More other writers at Bloomberg Opinion:

Gen Z gets a hard lesson on stock market risk: Allison Schrager

Can you make a living in the creator economy? : Erin Lowry

How to tell if the housing market is cooling: Conor Sen

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.

More stories like this are available at bloomberg.com/opinion

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