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18 2019 12:45 - 14:00
Meeting Room 4-E4-SR03, Via Roentgen 1, 4th floor

Consumer Reactions to Drip Pricing


VICKI MORWITZ, NYU Stern


ABSTRACT
This research examines how drip pricing—a pricing strategy whereby a firm advertises only part of a product’s price upfront and then reveals additional mandatory or optional fees/surcharges as the consumer proceeds through the buying process—affects consumer choice and satisfaction. Across a series of studies, we find that when optional surcharges are dripped (vs. revealed upfront) consumers are more likely to select a lower base priced option, choose an option that is more expensive in total, and be dissatisfied with their selection. We find these results even though consumers were given the opportunity to start over and change their selection after they were exposed to the dripped surcharges and the total price. Accordingly, we explore why consumers exposed to drip pricing tend to stick with their relatively expensive, dissatisfactory selections, and we find that it is driven by their perceptions regarding the costs and benefits of starting over and switching. Specifically we find that a belief that all firms charge similar additional fees/surcharges, high perceived search costs, inertia or status quo bias, and self-justification  all play a role. We discuss the implications of these findings for marketers, consumers, and policy makers.