Consumer Reactions to Drip Pricing

Abstract

This research examines how drip pricing—a strategy whereby a firm advertises
only part of a product’s price up front and then reveals additional mandatory or optional
fees/surcharges as the consumer proceeds through the buying process—affects consumer
choice and satisfaction. Across six studies, we find that when optional surcharges are
dripped (versus revealed up front) consumers are more likely to initially select a lower base
priced option which, after surcharges are included, is often more expensive than the alternative. Moreover, consumers exposed to drip pricing tend to ultimately select this lower
base price but higher total price option, even after being exposed to the total price and
given the opportunity to change their selection and even though they are relatively
dissatisfied with it. We explore why drip pricing has these effects and find that they are
driven by consumers’ perceptions regarding the costs and benefits of starting over and
switching. Specifically, we find that high perceived search costs (study 2), self-justification
(study 3), and mistaken perceptions regarding the potential gains of switching because of
inaccurate beliefs that all firms charge similar additional fees/surcharges (study 4) all play
roles. We discuss the implications of these findings for marketers, consumers, and policy
makers.

Keywords: drip pricing, pricing, consumer protection, hidden fees