 This past summer, my wife and I decided to take a trip to Europe. She had never been before, so I was especially excited. While browsing for plane tickets, I spotted what I thought was a steal: a round-trip flight for $617 per person. Score! But then came United’s dreaded Basic Economy warning. No flexibility, no checked bags, no real seat selection. I couldn’t stomach the restrictions, so I upgraded to the much more ~luxurious~ ‘standard economy’. The squeeze didn’t stop there. Next, I found myself agreeing to pay extra just to sit next to my wife on both legs of the journey. A couple clicks later, I looked at my cart, only to find that the cost had ballooned to $986 per person. What on earth happened? That $617 price? It was bait. And I knowingly fell for it. I even recognized the up-charges as they came, but it didn’t matter. The experience stuck with me, inspiring me to dig deeper into how airlines (and many other industries) use a pricing strategy known as drip pricing. It’s basically a psychological minefield of annoyance that we all put up with for some reason. In this article, I’ll explore how drip pricing works, why our brains are so susceptible to it, and how we can combat it in our everyday spending. What Is Drip Pricing? Drip pricing is a marketing and sales tactic where the base price of a product or service is advertised upfront, but additional optional or mandatory fees are revealed incrementally during the buying process. The initial price draws consumers in, but the final cost is often significantly higher. Airlines are arguably the poster child for drip pricing. They advertise attractive fares to hook travelers, then tack on fees for everything from checked bags and carry-ons to seat selection and boarding priority. In my case, simply choosing a seat and avoiding the dreaded Basic Economy tier added almost $400 to the cost of my “deal.” Why It Works: The Psychology Behind the Drip Drip pricing is effective because it taps into a well-documented mix of cognitive biases and behavioral tendencies: 1. Anchoring Bias. Humans tend to rely heavily on the first number we see (in this case, the $617 airfare). That becomes our psychological reference point, making every additional charge feel like a deviation from the “norm,” rather than a legitimate part of the full cost¹. 2. Mental Accounting. Coined by economist Richard Thaler, mental accounting refers to how people categorize and treat money differently depending on its source or intended use². Instead of evaluating the flight purchase holistically, we treat each fee (e.g., seat, baggage, upgrades) as a separate and more palatable transaction. 3. Sunk Cost Fallacy. Once we’ve invested time in searching, entering personal info, and selecting flights, it becomes psychologically harder to abandon the process, even as the cost creeps up. 4. Partitioned Pricing. Breaking up costs into smaller pieces can make the total seem less daunting. A 2009 study in the Journal of Consumer Research found that partitioned pricing can lead consumers to underestimate the total price, even when all costs are clearly displayed³. 5. Decision Fatigue. As more fees and options are introduced, our ability to make rational decisions diminishes. By the time you’re asked whether you want to pay $29.99 for extra legroom, your brain just wants to be done. This Isn’t Just Airlines: Drip Pricing Across Industries Airlines may have popularized drip pricing, but they’re far from alone. You’ll find it in:
A 2010 UK Office of Fair Trading study found that consumers paid on average 24% more under drip pricing schemes compared to when prices were transparent upfront⁴. This shows how effective, and costly, this strategy can be. Why We Keep Falling for It Despite being aware of these tactics, we still fall for them. Why?
All these factors leave us vulnerable, not because we’re not smart, but because marketing teams have become experts at exploiting the shortcuts in our brains. The good news is, once we understand the playbook, we can start to fight back. How to Protect Yourself Here are some practical defenses against drip pricing:
Conclusion Drip pricing preys on our mental shortcuts, from anchoring to mental accounting. It’s a prime example of how behavioral economics helps explain, and potentially fix, flawed consumer decision-making. So the next time you see a deal on an airline fare, ask yourself: What’s the real cost? And what is your brain conveniently choosing to ignore? More Reading: The Comfort of Cash: What Liquidity Does for Your Mind and Money Mental Accounting: Why the Same Dollar Never Feels the Same The Subscription Trap: How Consumer Psychology is Quietly Sabotaging Your Financial Plan ___________________________________________________________________
References ¹Tversky, Amos, and Daniel Kahneman. "Judgment under Uncertainty: Heuristics and Biases." Science, 1974. ²Thaler, Richard. "Mental Accounting Matters." Journal of Behavioral Decision Making, 1999. ³Morwitz, Vicki G., Eric A. Greenleaf, and Eric J. Johnson. "Divide and Prosper: Consumers' Reactions to Partitioned Prices." Journal of Consumer Research, 2009. ⁴UK Office of Fair Trading. "Advertising of Prices Market Study," 2010.
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AuthorAndrew Lancaster, CFP® Categories
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