The increasing popularity of digital stores has provided a multitude of benefits to business owners. Most notably, these benefits include higher visibility, lower costs for rent and the removal of geographical boundaries. At the same time, e-commerce has also introduced a number of unprecedented consumer issues that do not naturally arise through face-to-face interaction in physical stores. One of the most prominent of these newly emerging unfair practices is ‘drip pricing’.
According to the Australian Competition and Consumer Commission, ‘drip pricing’ occurs when your business presents a lower price to customers at the beginning of the transaction but then continues to add on incremental fees or charges.
Example
Airbnb states that it would cost $600 to rent a studio apartment in the heart of Paris for a week. This price is much lower than alternative offers and therefore, seems like a bargain. Upon the final stage of the booking process, you find that the final sum is actually $700 due to additional booking and cleaning prices.
It is crucial that you understand the implications of drip pricing so your business does not face legal trouble for misleading customers.
The legality of “drip pricing”
In Australia, there is no specific legal provision which regulates drip pricing. This does not mean that drip pricing is legal. In the past, the practice of drip pricing has been regulated under Section 29 of the Australian Consumer Law. Section 29 effectively prohibits business owners from making “false or misleading representation[s] with respect to the price of goods or services”.
Example
Australia Competition and Consumer Commission v Jetstar Airways Pty Ltd . This case concerned the conduct of Jetstar who imposed additional ‘booking and service’ fees. Jetstar failed to disclose this added fee at the beginning of the transaction. The Court ruled that Jetstar was misleading. This is because Jetstar used a discounted headline price for the purpose of attracting the attention of prospective customers. However, they were never going to provide the discounted price.
Is it ethical?
The technique of drip pricing assumes that consumers would rather proceed with the transaction rather than back out of it. This is even if there are additional costs associated with the purchase. This is because consumers tend to commit to purchases that require the participation of length processes. Therefore, it intentionally exploits consumer tendencies at the detriment of the consumer. As such, it cannot be considered ethical. Additionally, a 2014 University Study indicates that consumers themselves generally consider ‘drip pricing’ to be unfair.
The proliferation of e-commerce has acted in favour of many businesses through enhancing overall reach, visibility and cost-efficiency. However, the absence of continuous physical interaction between the business and the client may facilitate the development of new unfair practices. As a business owner, you are under an obligation to refrain from misleading prospective customers. If you are uncertain about the extent of your obligations, there are Business Lawyers on our marketplace ready to resolve your questions.
