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Drip-pricing in hotels - could you be breaking the law?

Updated: May 15

Drip-pricing in hotels - could you be breaking the law?


The concept of drip pricing has sparked much debate, yet what does it truly mean for us in the realms of travel, hospitality, and tourism?


In this episode, we are joined by Richard Collie, Managing Associate for TLT LLP a consumer law expert at award-winning law firm with particular specialism in the leisure industry, including advising on consumer regulatory matters looking at investigations brought by the Competition and Markets Authority and deep dive into drip-pricing the practice when a headline price is initially shown to travellers when they are browsing online, where additional elements of the price being added or ‘dripped’ as they move through the checkout process.


Richard sheds light on this pricing strategy, where additional costs are incrementally disclosed during the booking process, often leading to a substantially higher final price than the initial quote, catching customers off guard.


We explore the effects of drip pricing on consumer trust and the competitive landscape of our industry. Such practices can lead to feelings of deception among customers, potentially damaging a brand's reputation and diminishing loyalty. For businesses, while short-term gains may be seen, the long-term repercussions can be severe, including legal challenges and regulatory scrutiny.


The authorities are taking steps to address the challenges posed by drip pricing. We delve into the forthcoming legislation aimed at enhancing transparency and fairness in the pricing approaches of travel-related businesses. The Competition and Markets Authority (CMA) is at the forefront of this, advocating for consumer rights and equitable competition.


Understanding the consumer mindset is crucial when crafting pricing strategies. The way prices are presented can significantly influence buying decisions. Achieving an equilibrium between competitive pricing and transparency is essential for fostering trust.


References:


Note that DBT also commissioned a detailed report estimating the prevalence and impact of online drip pricing in certain sectors – including hospitality and travel.


Listen to more episodes of the hospitality industry podcast Travel Market Life and subscribe for the latest news at http://travelmarket.life/


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Programme Notes


This episode has been automatically transcribed by AI, please excuse any typos or grammatical errors


Ryan Haynes (00:00:25) - In today's episode, we're going to be looking at drip pricing, where a headline price is initially shown and additional elements are added throughout the checkout process. We're going to be joined by Richard Colley, managing associate, a consumer law expert at award-winning law firm TLT, last year, winning Law Firm of the Year at the Legal Business Awards. It has a particular specialism in the leisure industry, including advising on consumer regulatory matters. That includes advising companies in the travel and retail sectors. Drink investigations brought by the Competition and Markets Authority. We'll be discussing drip pricing, what the government is planning to do and the impact it can have on businesses.


Ryan Haynes (00:01:14) - Joining me now is Richard Collie. Thank you so much for joining us today, Richard.


Richard Collie (00:01:18) - Hi, Ryan. Good to speak to you. Really happy to be on the show.


Ryan Haynes (00:01:20) - So, Richard, let's start off by actually looking at what is drip pricing. Can you simplify this idea for us, please?


Richard Collie (00:01:29) - Yeah, I'll try my best. in fairness, you've done a reasonable summary yourself there. I mean, the first thing to point out is that drip pricing doesn't carry any kind of legal definition. It essentially is a kind of an informal description of a certain way of pricing products. And it's very common across a wide range of sectors. Essentially, it describes a situation where a consumer is searching for a product or service online, usually online. they see a headline price, they proceed through the checkout process, and by the time they get to the checkout, the price is increased from that headline price because of a range of different, add-ons, that have been dripped throughout the process. now, it's important to be kind of clear about what those additional elements of the price are. Some things may be optional. extras that are kind of the consumer can take it and leave it.


Richard Collie (00:02:22) - Other aspects of it may be mandatory. So things that prices like, for example, a booking charge or administration charge that all consumers have to pay. it's that latter, element that regulators are increasingly concerned about, and they're referring to them, rightly or wrongly, as junk fees. and they believe they should be included in the headline price. But obviously, you know, as you know, Ryan, it doesn't it's really important to be kind of clear from the outset that here a lot of products are, by their nature, bespoke and customized. I mean, take a package, a package holiday, for example. Consumers often want, options and choices and power to make that decision and to pay a price that reflects what they want. so yes, some prices may be dripped in those in those circumstances, but it's, you know, I think we just obviously need to get things in perspective here when we're talking about drip pricing because it captures some, some practices that are more harmful than others from a consumer law perspective.


Ryan Haynes (00:03:21) - Excellent. Thank you. Chris Richard. I mean, it is fascinating, particularly with the way that e-commerce has evolved over the last few years and the particular competition between securing that direct booking and going through third-party providers. And I guess you see that much more when there's that, highly competitive market environment. And we particularly see that obviously within travel, specifically across both flights and hotels. And it's certainly the role of metasearch, and I guess is that as well, where you're starting to see it becoming more glaringly obvious because you see a price at one point, maybe £79, and then you see another price from another provider at like £24. But then I guess when you get to the end of the bucket, that is the cart. then actually they could be very similar or identical prices.


Richard Collie (00:04:11) - Yeah. I mean, that's a really good way of looking at it because actually, when you look at this from the perspective of the Competition and Markets Authority, which is both the consumer protection regulator and a competition regulator, price is and always has been, the main driver of competition and particularly when price comparison websites metasearch providers as you say are enabling consumers to shop around easier more easily.


Richard Collie (00:04:40) - it's that's one of the reasons why regulators are so keen to ensure that there's, there's good competition, healthy competition for that headline price. And one of the things that's really interesting is that most of the, well, the two main investigations by the CMA to date that sort of touch upon pricing have both been in relation to sort of intermediaries. So, Booking.com, Expedia, Trivago, I think there were eight different hotel booking websites that were subject to their investigation, which I think was in 2019. but one of the issues there was they were saying what the CMA said is, look, you're not including mandatory charges. The headline prices that consumers are searching for don't include things like booking fees, resort fees, taxes that all can, you know, any consumer is going to have to pay. So if it's if it's mandatory, it's got to be in that headline price. Same with the CMA's investigation into, car rental intermediaries. So again, when you're you're shopping around for your cheapest rental before you go on holiday, we often the most people will go towards some sort of, price comparison website.


Richard Collie (00:05:44) - And the issue there was, again, you know, as you know, when you, when you rent a car, there's a number of overheads. Some of them are optional, and some of them are not. and again, it's things like taxes that had to be included. interestingly, in that particular investigation, they looked at sort of, location-specific charges as well. So for example, if you're renting a car in a region where slow snow chains are mandatory, they said, well, look, you've actually got to include a warning saying that these charges will be apply, or may apply depending on the season and things like where a child seat is mandatory. Again, the obligation was pushed onto the price comparison websites to make that clear, to consumers when they're shopping around. So it's fair to say that this is a yeah, I mean obviously it applies through direct channels as well, not just, digital comparison tools, but, yeah, it's fair to say this is a sector, you know, in terms of travel and hospitality that's already been in the CMA's crosshairs.


Richard Collie (00:06:41) - So yeah, it's received scrutiny already.


Ryan Haynes (00:06:45) - And are we at risk of there being more regulatory regulation here? Is the government planning to bring in any sort of new policies? Will there be a ban? And you know, what might this look like?


Richard Collie (00:06:56) - Yes, yes okay. Question. With regards to drip pricing, the government has announced that it will introduce legislation to ban again, as I said, what they see as junk fees, mandatory fees that consumers, are always going to pay, which could be sort of fixed booking charges, administration charges, service charges, those sorts of things. If whatever happens, the consumer's going to have to pay for it. It needs to be the legislation will state that it must be included in the headline price. and failure to do so would be a breach of consumer protection law. And, the kind of double whammy here is that in the background, under the Digital Markets Consumers and competition bill or the DMRC bill, the CMA, the main regulator, is going to be handed new powers, real game-changing powers.


Richard Collie (00:07:57) - So the ability to impose penalties up to 10% of global turnover on companies that breach consumer law. So that's multi-million-pound penalties on a par with what we see for antitrust and competition breaches, where regularly, you know, for large corporates you're talking massive fines. they can't do that at the moment. they generally tend. So the the investigations I referred to before, for online car rental and hotel booking that was dealt with via kind of legally binding agreements with the company, sort of settled in a way that no penalties were imposed. But if the same sort of situation were to arise, once the CMA gets these new powers, they could impose penalties, and that's without going to court. So, that's I mean, want of a better expression, the CMA are judge, jury and executioner. And, you know, you can appeal the fine in the court if you want to, but it's, you know, the rules are real tough enforcement powers, and they can be used to enforce these new, drip pricing rules.


Richard Collie (00:08:59) - and also just general consumer law. the only other thing just to sort of mention there in terms of drip pricing is that in addition to, the ban on, failing to disclose mandatory. Tree fees. There's also going to be a legal requirement to disclose. The possibility that consumers will pay variable mandatory fees. So that might be something that consumers definitely going to have to pay. But you can't calculate exactly what it's going to look like upfront. For example, a mileage charge for a car rental. equally, some service charges do vary depending on the sort of the size of the booking and things. So if it can't be declared, if you can't calculate what the fee is going to be upfront, the law will say that you still need to say how it will be calculated so the consumers can make an informed decision, before they go through the checkout process. So that is the that's, that captures, I say, the legislation that is definitely coming. some of it's I mean, the DMRC bill is going through parliament now.


Richard Collie (00:10:04) - It's almost finished going through the House of Lords. It's expected to come into force. well, they've said later this spring it's likely to be possibly a bit later than that. Now, the drip pricing thing, we've not seen the legislation yet, but it's it's possible that it will be bolted into this DMRC bill. Either way, it is coming.


Ryan Haynes (00:10:21) - it's obviously becoming so much more complex as a consumer when it comes to buying, and there's a lot more of this sort of. Yes, want to bring this transparency in and, and you sort of look at these sort of like metasearch and these comparison sites and you feel that you're getting some sort of transparency there. But then obviously, obviously, obviously every company sort of prices itself differently. And you have to look into all that detail there. are you seeing an increasing number of sort of, I guess, you know, across sectors particularly, look more closely at pricing and, and the way that companies are sort of either sort of setting up their pricing frameworks?


Ryan Haynes (00:11:00) - And are there many more discrepancies now than there ever have been?


Richard Collie (00:11:05) - Yeah, I think it's interesting because so many of these things are driven by consumer demand. And I said, as I said before, consumers often like, having options and specifications when they go through the checkout, process. So each brand will have its own view of its own customers. So yeah, I think it's fair to say, there is more difference now between, providers. and obviously, that does make things more challenging from a competition perspective. But the thing is, you need to what you need to understand is that while something may not be ideal from a regulatory perspective, ultimately the regulator's approach has to be balanced. and, you know, it isn't there to stamp out, practices that, you know, you know, actually may not, I say may not be ideal from a competition perspective, but actually from an individual consumer's perspective aren't, you know, actually are not causing any real harm. So that's that's the balance.


Richard Collie (00:11:57) - And I think that's why the legislation goes down the route that it does. So it's really zoning in on those real, you know, say the mandatory fees that consumers can't avoid paying the junk fees. there's it's much more fluid when it comes to this sort of the, the options and the specs and stuff. That you sort of choose throughout the checkout process. And the key there is just obviously transparency just being clear. And it's obviously if you are going to quote a headline price and there are lots of options involved, you know, making sure that it's a sort of a from price, for example, rather than a sort of stated fixed headline price.


Ryan Haynes (00:12:31) - I was going to ask you actually, your next question was really sort of what advice you give to travel, hospitality and tourism businesses about how to best manage their pricing and in particular in light of the new policies coming through and, and what should they be considering when they're looking at pricing.


Richard Collie (00:12:48) - Yeah, I mean, we are working with a number of, you know, certainly with our clients at the moment because of this new legislation that's coming, we're advising that clients, not just in the travel and hospitality sector, but other sectors as well.


Richard Collie (00:13:00) - reflect on, on, on their pricing models. And I guess the starting point is, well, what works for your customers? what works commercially? how do you want to set up your pricing and then you test it, you know, obviously the first, port of call is are there any, you know, are there any of these mandatory fixed fees that you're not disclosing in the headline price? And obviously, we know the direction of travel with legislation there. You know, they're going to have to be removed. but then it's looking at the wider, choice that consumers have and how and how the pricing is structured. Is it clear, is it transparent, you know, when the when they're looking, you know, there's always going to be a need to anchor consumers around a price point. and that's that's fine. But it's like, you know, you need to look at whether that accurately reflects the likely end price. And, you know, do you need to add disclaimers? Listen, I don't like personally the disclaimer because it's sort of, you know, ultimately the the obligation is on is about transparency.


Richard Collie (00:14:02) - So, you know, can information boxes that sort of flag the existence of, of the potential charges or, you know, there's so many ways that you can creatively provide, consumers with information that doesn't, bamboozle them.


Ryan Haynes (00:14:16) - It's a whole psychology of pricing, which I think is, you know, would take us down a whole new rabbit hole itself. And I'm going to have to look at getting a psychology, pricing expert in and, that's where perhaps you, you would then be able to marry up what will work and what won't for businesses.


Richard Collie (00:14:32) - Yeah, we work with behavioural economists, you know, and it's and then the CMA does the CMA takes this stuff really seriously. So they've got a whole programme of works and this feeds into it. Actually what they referred to was online choice architecture how you structure your sales process. and what psychological impact that has on consumers. Are you they refer to these, these sort of nefarious, terms like dark patterns and, dark nudges where you're sort of, you know, I think it's sort of assuming some sort of evil intent almost on part of the company.


Richard Collie (00:15:04) - But but they are looking at that, you know, and it is something that they consider to be important. So like I say, that what they would say with the kind of, the more harmful form of drip pricing is that actually you're, you're putting that at the end because consumers are less likely to object to it if you put it there.


Ryan Haynes (00:15:19) - Because I mean, it was a big issue, wasn't there around sort of like restricting, in, inventory and limiting the number of available places or, putting in time restrictions for how long you have, or how much time is left, even though perhaps, they had, you know, quite a bit of inventory left over, but they sort of made the market look, make it look like it was only restricted inventory available. And that that was a particular issue that they've, they've clamped down on in the last few years.


Richard Collie (00:15:49) - Exactly. And again, that's been looked at in the kind of hotels, sector in particular.


Richard Collie (00:15:54) - they've got the CMA has a couple of, live investigations that look at urgency claims and pressure selling claims, countdown clocks, that reset once they get to the end. but you know, particularly with, I mean, the inventory point again, you know, you raise a really good point. It's not a drip pricing issue, but it's just a general consumer protection pricing point. you need to be really careful if you're making that kind of claim like, you know, ten customers are looking at this right now. Hurry up. You know, again, those sorts of psychological nudges, you know, if there's availability is genuinely limited and it's in the consumer's interest to know that, then that's fine. But one of the things they found, and particularly it's the investigations they're looking at now, which have nothing to do with travel. I think, interestingly, mattress sales of mattresses online seem to be, one of the things they've been looking at at the moment, where actually there's no evidence that the products will have limited availability.


Richard Collie (00:16:57) - So they shouldn't have been making those pressure selling claims, even the kind of the implied ones, which is sort of, you know, you know, ten items left or something is they expected basically the regulators expect a very high level of accuracy, for those to be using those sort of techniques.


Ryan Haynes (00:17:15) - Fascinating. Really insightful there, Richard. Thank you ever so much for coming in and explaining all of that to us. and delving a little bit more into the issue around trip pricing. It's been incredibly valuable for us today.


Richard Collie (00:17:28) - It's been a pleasure to be on the show. Ryan, thanks very much for having me on.


Ryan Haynes (00:17:32) - So that was Richard Colley, the managing associate for TLT, an award-winning law firm that looks deeply into some of these issues for travel and retail and brought by the Competition and Markets Authority. I'm your host, Ryan Haynes. You can check more of our episodes and discussions on our podcast channel. Thanks for listening. Ciao for now.

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