Feeling nickeled and dimed – consequences of drip pricing

Abstract

Purpose – In drip pricing, companies advertise low prices for products or services and then tack on additional surcharges later in the purchase process. This tactic has not only become popular for airlines but also for other online services, such as retailers and telecommunication companies. Despite the widespread use of drip pricing in the marketplace, little is known about its effects on consumer behavior. The purpose of this paper is to compare the effects of drip pricing with those of price partitioning. Specifically, it elaborates on perceived value, perceived deception, purchase intentions, and the moderating effect of price consciousness. Design/methodology/approach – The paper develops a conceptual framework and tests four hypotheses with an experimental study on a purchase decision for a continental flight booked through an online travel agent. The experiment is based on a between-subjects design with two groups (n=130). The data are analyzed with multivariate statistics and structural equation modeling. Findings – The findings reveal that drip pricing for service offerings leads to inferior results compared with partitioned pricing in terms of perceived value, perceived deception, and, ultimately, purchase intentions. The findings also indicate that the effects differ depending on the customer’s price consciousness. Originality/value – The study draws from previous studies on partitioned pricing and replicates their findings. However, it is one of the first studies to elaborate on moderators and mediators of the consequences of drip pricing in a service context.

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