Drip pricing

In online retail, drip pricing (also known as partitioned pricing or shrouded pricing) is a sales technique where a headline price is advertised at the beginning of the purchase process, followed by the incremental disclosure of additional fees, taxes or charges. The objective of drip pricing is to gain a consumer's interest in a misleadingly low headline price without the true final price being disclosed until the consumer has invested time and effort in the purchase process and made a decision to purchase.

Drip pricing is controversial because it can deceive consumers and distort competition by making it difficult for businesses with more transparent pricing practices to compete on a level playing field. Many jurisdictions have enacted legislation to outlaw drip pricing of fees, taxes and surcharges. For example, throughout the European Economic Area and most of the rest of Europe, retailers must include value added tax in prices given to consumers. Article 22 of Directive 2011/83/EU on Consumer Rights outlaws the default selection of additional drip-priced charges such as pre-ticked boxes on websites; in the United Kingdom, this is enacted under Regulation 40 of the Consumer Contracts Regulations 2013.

Industries where partitioned pricing has historically been prevalent include air transportation, lodging, auto dealerships, auction houses, online retailing, and sports and entertainment ticketing. Studies show that consumers spend more when price tags are tax-exclusive than tax-inclusive.

Effectiveness

Studies consistently show that consumers spend more when price tags are tax-exclusive.

Tversky and Kahneman’s research suggests that the reason for drip pricing being so effective is due to consumers anchoring on to what matters to them, for example the base price, and consider that the main factor when purchasing a product or service.