Drip pricing: is it legal in UK and EU?

What is "drip pricing"

Drip pricing is more of a marketing than pricing strategy. When price becomes one of the top factors for making a purchasing decision, many sellers of products and services try exotic strategies to stay competitive while removing a pressure from their profit margin. Drip pricing is one of them. It basically means that a seller advertises only part of a product's price on the product page, and reveals other charges as the customer goes through the buying process.

Who uses drip pricing more often

As online shoppers demand lower prices, and are eager to go far and beyond looking for deals and comparing offers from multiple sellers, not surprisingly, drip pricing is mostly used in eCommerce. This allows sellers keep their advertised prices seemingly low and competitive, while adding additional fees and charges while a customer proceeds to checkout.

It might sound outrageous, but only when we think about retail experience. With airline tickets and rentals we apparently got used to it, and see nothing wrong when our plane ticket's price end up being 70%-80% higher than we initially expected it to be. Actually, we'd be surprised if it remains the same. All because it has become an industry standard. Everyone is aware that airlines advertise low base fares but add charges for baggage, seat selection, and other services. A similar example — event ticketing platforms might add service fees, processing charges, or delivery fees on top of the advertised ticket price.

It might sound outrageous, but only when we think about retail experience. With airline tickets and rentals we apparently got used to it, and see nothing wrong when our plane ticket's price end up being 70%-80% higher than we initially expected it to be.

Is drip pricing legal in the UK and EU

In the context of the United Kingdom (UK) and the European Union (EU), the legality of drip pricing hinges on consumer protection laws and regulations that emphasise transparency and fairness in advertising and selling practices.

In the UK, drip pricing practices are scrutinised under the Consumer Protection from Unfair Trading Regulations 2008 and the Consumer Rights Act 2015. These laws require that consumers be provided with clear, accurate, and timely information about the total price of goods and services. If a company fails to include compulsory charges in the initial price or hides additional fees until the final stages of a transaction, it could be considered engaging in misleading actions, which are prohibited under these regulations.

Similarly, in the EU, consumer protection is governed by the Unfair Commercial Practices Directive, which aims to prevent businesses from engaging in unfair, misleading, or aggressive commercial practices. Under this directive, drip pricing could be seen as misleading if it deceives the consumer about the true cost of a product or service, leading them to make a decision they would not have made otherwise.

Both the UK and the EU stress the importance of transparency and the right of consumers to be fully informed about prices before they make a purchase. Therefore, while not illegal, drip pricing practices in the UK and the EU must adhere to strict guidelines ensuring full disclosure and transparency to avoid being classified as misleading or unfair practices. This approach aims to protect consumers and ensure a fair marketplace where customers can make informed decisions based on the true cost of goods and services.

Why companies still use drip prices?

As mentioned earlier, drip pricing is often a result of increased competition to capture consumer attention and win the pricing war. Companies adopt this tactic to be chosen over other sellers when price is a major factor in decision-making. It has been proven to significantly increase the Click-Through Rate (CTR) from search results to the product page.

In cases where a product has complex pricing (for example, a base price plus usage-based pricing, along with additional features and services that a buyer can theoretically opt out of but in practice are almost compulsory, like credit card processing fees or similar tactics), drip pricing provides an effective way for companies to upsell and cross-sell.

Consider an example of Mailchimp or similar emailing service providers. They would show you the basic fare calculated for a very limited usage. For example, 4 emails a month to 1000 email addresses. In case you'd like to start sending out your emails to more people or more often, you'll have to pay extra without an option to switch to a different plan.

Alternative to drip pricing

However, the use of drip pricing often leads to customer backlash and can negatively impact brand value. So, what’s the alternative? Is there a way to offer low prices, which customers seek, while also alleviating pressure on profitability and remaining compliant with legal standards? Absolutely!

There are at least two pricing strategies worth considering: Price Leadership and Segment-based Pricing. You can read more about these topics and how to implement them in our relevant blog posts (check the links above).