07 May 2024 Drip Pricing

THIS ARTICLE COVERS ‘DAILY CURRENT AFFAIRS’ AND THE TOPIC DETAILS OF ”Drip Pricing”. THIS TOPIC IS RELEVANT IN THE “Economy” SECTION OF THE UPSC CSE EXAM.

Why in the news? 

The Department of Consumer Affairs recently warned consumers about ‘drip pricing’, in which only a portion of the price is advertised initially, and additional charges are levied later during the purchase process.  

The Centre government said that the drip pricing could surprise consumers with hidden charges and asked them to contact the National Consumer Helpline (NCH) number 1915 or WhatsApp 8800001915 for assistance. 

What is Drip Pricing? 

Drip pricing is a strategy businesses use where additional fees or charges are gradually revealed to consumers during purchasing rather than being disclosed upfront. This can lead consumers to underestimate the total cost of a product or service until they reach the final stages of the transaction. 

Drip pricing involves initially showing only part of the cost of a product or service, with additional fees revealed as the customer moves through the purchase process. This can include booking and service fees, resort and credit card fees, local taxes, and internet or necessary amenities costs. 

This tactic is often used in travel, hospitality, telecommunications, and e-commerce industries. Here’s how it typically works: 

• Initial Price: The seller advertises a product or service at a base price, which may seem attractive to consumers.
• Additional Charges: As the buyer progresses through the purchasing process, additional fees or charges are incrementally disclosed. These could include taxes, service fees, handling, resort, booking, or other surcharges.
• Total Cost: The final price that the buyer pays is significantly higher than the initially advertised price due to the accumulation of these additional charges.

For example, when booking a hotel room online, you might initially see a base price, but as you proceed through the booking process, additional charges like resort fees, taxes, or service fees may be added. These additional fees might not be displayed until the final stages of the transaction, leading consumers to feel misled or frustrated. 

Drip pricing impacts multiple stakeholders and market aspects in diverse ways. These are: 

1. 1. Drip pricing can lead to consumer confusion and frustration as they may not anticipate the full cost of a product or service until later in the purchasing process. 
   2. Consumers may perceive drip pricing as deceptive or misleading, which can erode trust in businesses and the market as a whole. 
   3. Businesses engaging in drip pricing may face regulatory scrutiny or legal consequences in jurisdictions where such practices are deemed deceptive or unfair. 
   4. Drip pricing could impact consumer spending patterns, as consumers may become more cautious or selective in their purchases, affecting overall market demand.
   5. While drip pricing tactics may initially attract customers with lower base prices, businesses risk losing revenue if consumers perceive the final cost as unfair and choose not to make repeat purchases. 

In December 2023, the Central Consumer Protection Authority (CCPA) issued ‘Guidelines for Prevention and Regulation of Dark Patterns, 2023’ to prevent and regulate dark patterns such as drip pricing, bait-and-switch, disguised advertising, and false urgency. 

Dark patterns undermine consumer autonomy, decision-making, and choice, potentially constituting misleading advertising, unfair trade practices, or violations of consumer rights.

About the Department of Consumer Affairs:

The Department of Consumer Affairs (DCA) is a government agency in India that protects consumer rights and interests. It operates under the Ministry of Consumer Affairs, Food and Public Distribution. Its main functions include: 

• • Consumer Protection: The primary role of the Department of Consumer Affairs is to protect consumer interests by enforcing laws, regulations, and policies against unfair practices, deceptive advertising, and poor-quality goods and services. It upholds the Consumer Protection Act of 2019, aiming to secure consumer rights and resolve disputes.
  • Policy Formulation: The DCA is responsible for formulating policies and guidelines related to consumer protection, including those aimed at promoting fair pricing practices and ensuring pricing transparency in the market.
  • Regulatory Oversight: The department oversees businesses and industries to ensure compliance with consumer protection laws and regulations. This includes monitoring pricing practices to prevent deceptive tactics like drip pricing.
  • Complaint Resolution: The department provides mechanisms for consumers to lodge complaints against businesses engaging in unfair or deceptive practices, including drip pricing. It investigates consumer complaints and takes appropriate enforcement actions against violators.
  • Legal metrology: The department upholds the Act of 2009, guaranteeing the precision of weights and measures in business and trading activities.
  • Bureau of Indian Standards (BIS): The Department of Consumer Affairs oversees the Bureau of Indian Standards (BIS), tasked with developing and implementing quality standards for products and services.

CONCLUSION: 

Drip pricing can have wide-ranging effects on consumers, businesses, market dynamics, regulatory environments, and the economy as a whole. The extent of these impacts depends on factors such as consumer perceptions, regulatory responses, and competitive pressures within specific industries. However, promoting transparency and fairness in pricing practices is generally beneficial for fostering a healthy and trustworthy market system.

Download Yojna daily current affairs eng med 7th May 2024

Mains Practice Question:

Q. How does Drip’s pricing compare to that of its competitors in the market? Are there any testimonials or case studies highlighting the effectiveness of Drip relative to its cost?

Q. “Is it ethical for companies to use drip pricing tactics, where additional fees are added incrementally throughout the purchasing process, potentially leading to a lack of transparency and informed consent from consumers?”

Amit Pradhan

I have the experience to guide and write the content for the  UPSC, and PCS Aspirants in preparing for the Civil Service Exam.  Currently Working as a content developer in Yojna IAS.