Consumers Hate Fees, But Are Willing to Pay Them Anyway
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Here's your money briefing for Tuesday, June 27th. I'm J.R. Whelan for The Wall Street Journal. I think it's under consumers' skin like taxes and fees that drive up the prices of everything from food to airline tickets when it's time to check out. But research has shown that even when consumers know that companies will tack on extra charges, they're likely to just pay the bill and move on.
One of the things that happens is people complete their shopping process, and it's much more expensive than they thought. And they just say, eh, you know, it's probably going to be like that everywhere. And they're not willing to stop and start over and go back and, you know, check if other places actually have better rates.
We'll talk to Wall Street Journal numbers columnist Josh Zumbren after the break.
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A series of experiments has shown that although consumers have voiced displeasure over taxes and fees tacked on to prices, in many cases, they have no problem paying them. Wall Street Journal numbers columnist Josh Zumbren joins us with more. So, Josh, in your column, you write that economists call the addition of taxes and fees drip pricing.
What are consumers' initial reactions to taxes and hidden fees?
Why do they call it that?
Drip pricing is the term that kind of refers to the idea that you see this initial price and as you go through the purchasing process, things are dripped onto it. You know, you get a fee, a service charge, an amenity fee, whatever it might be. You see these in obviously a lot of different industries applied in a lot of different ways. But the basic effect is that over time, as you go through the process of purchasing the product, you end up with a much higher price at the end than you started with.
Now, how is this different from tipping that's often added on to prices?
The common thing, obviously, is that you end up paying more than you expect. But there's two key differences. I mean, the one is that the drip pricing is really not optional in most cases. It's something that you have to pay, you know, if you want to buy those concert tickets, if you want to buy that plane ticket, whatever, you have to pay those fees. Whereas the tipping is... is it's optional, right? I mean, you know, even at a restaurant, if you want to leave a 0% tip, you can. So one is the optionality. Two is the kind of emotional part of it that's involved, right? I mean, the reason you don't leave a 0% tip is that it's very rude.
All right, so back to taxes and fees. You discuss a series of experiments that focus on the psychology of consumers when facing tacked-on fees. In one test, retailers included taxes and fees on a product's price tag pretty much to eliminate any surprise. How do consumers respond?
Right. So people hate hidden fees. I mean, I don't think there's any question about that, right? This is a very annoying practice. But here's the kind of problem from the perspective of retailers and companies is that when you try to be transparent about the prices, consumers actually, the way they act and the way they then purchase is they really hate that.
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