Posted on: December 10, 2012
Stop that drip!
Today's topic is drip pricing, and as a preliminary matter, we have to note that whoever came up with that name probably took a dim view of the practice.
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Drips are bad. There are not many situations where we want something to drip. Certainly not pipes, garden hoses, cups, pitchers, gas tanks or noses. Drip is an old slang phrase for a boring or annoying person you don't want to hang out with. So you get the idea.
Drip pricing is the practice whereby a seller advertises or discloses only a portion of the price and gradually reveals the price of other necessary components while reeling in the buyer or ringing up the final tally.
Think of the local garage advertising an oil change special for $19.99. Only it's not $19.99, because there's a $5 mandatory "shop fee."
Speaking at a conference on drip pricing in May, Federal Trade Commission (FTC) Chairman Jon Leibowitz said drip pricing "has the potential to mislead and harm consumers," calling it a "problem of such wide scope that almost all of us have faced it."
As early as 1989, the FTC was taking action against car rental companies for failing to disclose "terms and conditions that are mandatory or are not reasonably avoidable."
Now, more than 20 years later, it's the hotel industry's turn.
Acting in response to issues raised at the May conference, the FTC recently sent letters to 22 hotels about the practice of adding mandatory "resort fees" to hotel rates to cover various amenities.
The letter stated, "We believe that online hotel reservation sites should include in the quoted total price any unavoidable and mandatory fees, such as resort fees, that consumers will be charged to stay at the hotel."
The letter "strongly" encouraged hotels to review and change their practices.
To its credit, the FTC is not naming the 22 hotels, in the belief that they deserve a chance to clean up their acts before it starts naming names.
But what might matter more than the names of these hotels is that the FTC is clearly sending a message to the entire hotel industry.
We don't have a problem with any of this, but we would add two big footnotes.
First, we believe the travel industry -- and commerce in general -- can do without drip pricing, as long as we limit our scorn to the breakout of services and fees that are truly mandatory and unavoidable.
Legitimate unbundling and a la carte pricing, however, are honorable practices, and we believe merchants, including hotels and airlines, are entitled to use them as long as consumers know up front that they are expected to choose from a range of options and that the final price will reflect their personal choices.
Second, if drip pricing is as ubiquitous and damaging as the FTC chairman claims it is, perhaps the FTC's response could be a bit broader in scope. The letter to 22 hotels is the FTC's first and only remedial action to have resulted from the conference in May.
This appears to be a timid and limited action if, by the FTC's own admission, the malodorous practice of drip pricing is rampant throughout the economy.
At the conference, Leibowitz said that "going forward, we are going to be looking for drip pricing problems." Fairness suggests that the FTC should keep looking, lest it gives the industry some reason to believe that it is being singled out for -- how should we put this? -- drip enforcement.