Drop Pricing: A Widespread Issue in Consumer Industries
Drop pricing, a practice where companies add extra booking or membership fees to their products and services, has raised concerns among consumer rights groups who say that it is an underhanded way to squeeze extra money out of consumers. The practice is not illegal, but it has become a common strategy among various industries, from train reservations to food delivery apps and concert tickets. In the UK, the government has recently launched an investigation into the prevalence of the practice, and it has vowed to take further steps if necessary as part of the government’s broader effort to tackle the rising cost of living.
The Investigation and Potential Measures
In his trip to Washington, British Prime Minister Rishi Sunak has ordered a review of drop pricing as part of the government’s wider cost-of-living crisis investigation. The Department of Business and Commerce is looking into the matter to understand how widespread the issue is and how harmful it might be. Depending on its outcome, the Competition and Markets Authority, the UK’s competition regulator, could receive new powers to tackle drop pricing. Sunak’s move also complements the government’s broader review of consumer rights and protections after Brexit.
However, consumer group Which? argued that banning drop pricing in digital marketplaces, competition, and consumer bills should be explicitly stated in the implemented measures. Fees can be added later in the buying process, making it more likely that customers will accept them. Therefore, to protect consumers’ rights, companies should be more transparent in their pricing strategies to ensure that their products’ true costs are known upfront.
Transparency and Trust as Key Points
Transparency in pricing is not only crucial for gaining the trust of customers, but it also drives business sustainability and competition. By increasing transparency, companies could earn positive reviews, improve consumer satisfaction, and differentiate themselves from their competitors in the market. It also fosters public trust and supports ethical business practices.
For example, the International Air Transport Association (IATA) has developed the New Distribution Capability (NDC) to ensure that airlines provide transparent pricing for their products. NDC aims to offer consumers more comprehensive and accurate flight information, including ancillary service prices, baggage charges, and seat selections. Similarly, British Airways announced that it would stop offering “hidden fares” on its website and provide clear information on prices instead.
Moreover, drop pricing is not the only issue that companies should worry about but also the concept of the “subscription economy.” Many companies currently offer subscription services or memberships, which turn customers into loyal followers, thus increasing their likelihood to buy related products, services, or experience additional upsells. Companies need to ensure that their subscription service agreements are clear and reasonable, making it easy for customers to cancel or renew subscriptions, ensuring their protection and rights as consumers.
Conclusion
Drop pricing is a common method among consumer industries to charge extra costs to consumers, which has raised concerns among consumer rights groups. The UK government has launched an investigation to understand how widespread the practice is and how to tackle this issue. Transparency and trust, two key aspects, play a crucial role in building public trust and loyalty for companies. Companies should be transparent about their pricing strategies to earn positive reviews, improve consumer satisfaction, and differentiate themselves from their competitors. They should also ensure that they provide clear subscription service agreements that make it easy for customers to cancel or renew their subscriptions. By doing so, companies can protect their customers’ rights and promote a competitive and sustainable market environment.
SUMMARY: The article gives an overview of drop pricing, a practice whereby companies hide the true cost of products and services by charging extra fees to consumers. It highlights the UK government’s effort to investigate the prevalence of the issue and the potential measures to tackle it as part of the broader cost-of-living crisis program. The article underscores the importance of transparency and trust in pricing strategies for companies, and provides examples and suggestions to ensure that companies build public trust and promote a competitive and sustainable market.
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Rishi Sunak ordered a review of “drop price” whereby companies hide the true cost of products and services by charging extra costs to consumers.
The British prime minister said on his trip to Washington this week that the government would investigate the prevalence of the practice and, if necessary, devise measures to tackle the problem during a wider cost-of-living crisis.
Drop pricing refers to the addition of extra booking, membership or other charges by businesses to the cost of products and services, ranging from concert tickets to gym memberships and airfares.
Some airlines offer customers a prime fare for a ticket before the total cost increases through the accumulation of baggage fees, priority boarding, inflight dining, or specific seat reservations.
The practice is not illegal but has raised concerns among consumer rights groups who say it is an underhanded way to squeeze extra money out of consumers.
Sunak said he had launched an investigation by the trade department into the matter.
“The Department of Business and Commerce is looking into the drop pricing issue to get a sense of how widespread and damaging it might be,” he said.
“I think we’re all probably anecdotally and individually aware of this practice of – you know, you get more and more stuff added to the cost of something as you move through a process and there’s just not the kind of price transparency you’d expect.”
Sunak said the government would take further steps if needed as part of the government’s broader effort to tackle the rising cost of living.
“This is a practice that we want to make sure we follow, observe, to see how harmful it is and if we need to take any further action,” he added.
Depending on the outcome of the Enterprise Department’s review, ministers could give the Competition and Markets Authority, the UK’s competition regulator, new powers to tackle drip pricing, according to officials.
The CMA in January launched a review of unit prices in the food sector in an attempt to combat cost pressures.
Officials said Sunak’s initiative would complement the government’s broader review of consumer rights and protections underway since Brexit.
Sunak’s move follows an announcement by US President Joe Biden last year that he intended to limit what he called “junk taxes,” such as hotels charging “resort fees” for WiFi or colleges adding extra fees to students through products sponsored finance.
Rocio Concha, director of policy and advocacy, at consumer group Which?, said: ‘Price drop is happening in a variety of industries, from train reservations to food delivery apps and concert tickets. . Fees can be added later in the buying process, making it more likely that consumers will accept them.
“It is good that the government is reviewing these misleading practices, but it needs to go further by explicitly banning drip pricing in its digital marketplaces, competition and consumer bills to end this behaviour.”
https://www.ft.com/content/25319d55-064f-4d7e-a9b2-e8d23237af43
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