Drip pricing is a strategy used by online retailers to encourage purchases. It occurs when consumers are shown an initial, often attractive price, with additional fees revealed, or “dripped”, later in the checkout process. Until now, it has been unclear how prevalent this practice is among retailers in the UK, and therefore what impact it has on UK consumers.

Alma Economics was commissioned by the Department for Business and Trade to conduct research on this issue. We manually collected and analysed data from 525 online providers in four sectors (retail, hospitality, entertainment, and transport & communication), going through the checkout process for goods and services and gathering data on dripped fees. We then classified the harmfulness of these fees based on pre-determined criteria. Finally, using an economic model, we made an estimate of the additional cost to consumers.

We found that drip pricing, and the use of harmful dripped fees, is common across online providers, although the specific characteristics of the dripped fees included in the checkout process vary across sectors.

Key findings include:

46% of the 525 providers in our sample included at least one dripped fee (not including delivery fees) as part of their checkout process.
Out of the four sectors, dripped fees are most frequently found in the transport & communication sector, and least frequently in retail.
Nearly half of providers (41%) included dripped fees that met more than one criterion of harm (e.g., that it was mandatory).

Our economic model estimated that UK consumers spend an additional £595 million to £3.5 billion online each year due to dripped fees. However, the true total detriment to UK consumers due to dripped fees is likely to be higher, as our model does not factor in the impact of search costs or consumers selecting multiple optional fees.

Our findings show that drip pricing is a common strategy despite the existence of consumer protection legislation. This is highly significant, as it demonstrates that greater scrutiny of drip pricing is needed in the UK to protect consumers.

Future research would benefit from examining:

How consumers might vary in their response to different types of dripped fees,
How consumer behaviour is impacted by the number of providers selling the same product,
What types of interventions might be most effective in minimising consumer harm from drip pricing.

Find out more and read the report here.

Estimating the prevalence and impact of drip pricing