As a business, you should be aware of how the law regulates misleading or deceptive conduct. Importantly, the Australian Consumer Law (ACL) protects consumers if your business acts unfairly or deceives them. One way this may occur is through drip pricing. As a result, it is important that you understand what it is and how you can avoid it. This article will explain drip pricing, how it is regulated, and what that means for your business.
What is Drip Pricing?
Drip pricing is when an initially advertised price of an online purchase is increased by extra fees and charges. As a result, consumers pay more than they originally intended to, making it challenging for them to compare prices upfront accurately.
Issues with drip pricing are particularly relevant when purchasing services, such as airline tickets, event tickets, accommodations, and vehicle rentals. This is because extra fees, including booking and service fees, are more likely to appear. For example, an airline advertises a sale fare of $100 from Sydney to the Gold Coast, one way. After progressing through each stage of the process, refusing seating choices, insurance, and ‘jump the queue’ offers, the consumer receives the booking fee of $7, which increases the $100 fare to $107.
How Can Consumers Avoid Paying More Through Drip Pricing?
Although you are a business, it is important to understand what drip pricing looks like from a consumer’s perspective.
Consumers, when purchasing from you, can take measures to avoid paying more such as:
- Not just focusing on the advertised price: Consumers can add up all the charges together to work out the final price they will need to pay and make a more informed decision.
- Turning to alternative options: Customers may reconsider the transaction if multiple additional charges arise, choosing instead to check for better prices from competitors.
- Paying attention to preselected options: Your sales process may automatically add options with added costs, making consumers manually remove anything they do not want included.
- Checking the booking before payment: Though this is generally good practice, the risk of drip pricing may encourage consumers to be significantly more cautious, reading through all aspects of their booking before payment.
If you believe that your consumers currently are having to take several of these measures, your business may be engaging in drip pricing. You should be aware of your role when pricing your products or services, ensuring that your consumers feel secure and make cost-effective decisions.
Continue reading this article below the formHow Can I Ensure I am Not Engaging in Drip Pricing?
As a business, you may advertise attractive prices to consumers to improve your marketing and bring in customers. In particular, you may advertise a low ‘headline price’. However, you may be contravening the ACL if extra fees erode this low price. The ACL outlines that you must not make a false representation about the price of your goods or services. Doing so may result in you facing legal action for misleading or deceptive conduct.
Instead, you should remember that when pricing, your priority is to enhance transparency and help consumers make more informed purchasing decisions. You must clearly include all charges in the advertised price of their goods and services up front. This includes charges for pre-selected options which consumers can choose to deselect. By doing so, you can also disclose the total cost of your good or service if you intend to levy fees the consumer cannot avoid.
What is the Role of the ACCC?
The Australian Competition & Consumer Commission (ACCC) is the body responsible for promoting fair trading and commerce. If you are found to have breached the ACL through drip pricing, the ACCC can levy monetary penalties against you. Also called pecuniary penalties, these arise for:
- false or misleading conduct,
- pyramid selling, or
- unconscionable conduct.
Depending on the severity of a drip pricing issue, the penalty amount will change. However, you may face a maximum penalty for this conduct of:
- $50 million for corporations; and
- $2.5 million for individuals.
Crucially, you should be aware that the ACCC can take other enforcement measures if you breach the ACL. For example, they may instigate criminal proceedings or serve orders for you to compensate your customers. Therefore, it is essential that in running your business, you avoid conduct that could possibly be drip pricing.
Case Study: Jetstar Airways and Virgin Australia Airlines
In 2015, Jetstar Airways Pty Ltd (Jetstar) and Virgin Australia Airlines Pty Ltd (Virgin) were found to have violated the ACL by engaging in misleading and deceptive conduct. In particular, both airlines made false or misleading representations about the price of particular advertised airfares. The issue arose from Jetstar’s and Virgin’s failure to adequately disclose an additional Booking and Service Fee ($8.50 and $7.70 respectively), which was charged on bookings paid using most credit cards or PayPal. This information was only released to consumers once they had moved through several stages of the booking process. In response, the Federal Court ordered Jetstar to pay a $545,000 penalty and Virgin to pay a $200,000 penalty for breaching the ACL.
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Key Takeaways
Drip pricing occurs when a low initial price is advertised, but gradually increases due to additional fees across the payment process. This may be considered a breach of the Australian Consumer Law (ACL), and you may face enforcement action such as penalties from the ACCC for drip pricing. As a result, you should aim to be transparent about advertised prices, ensuring that you build trust with your consumers and help them make informed decisions.
If you would like assistance regarding drip pricing, contact our experienced advertising compliance lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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