These days, many consumers shopping for cars are resigned to paying inflated prices. Bret Bonnet, for instance, felt a wave of excitement when he discovered a 2022 Ford Expedition listed on Cars.com for $63,000, a noticeable drop from its $70,000 MSRP.
However, that excitement quickly faded when he learned from the dealership about an additional “market adjustment” fee of $5,000 that would apply to all vehicles.
Bonnet, co-founder of a branded products distributor, expressed that the issue wasn’t necessarily the price itself. He understood the reality of higher costs and limited vehicle availability.
His frustration stemmed from the belief that the dealership was trying to deceive him. “You can display the actual price online — there’s no need to artificially lower it and then add a hidden fee,” he stated.
He felt that the dealership wasted his time and attempted to trick him, leading to his decision to walk away from the deal entirely.
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The Rise of Hidden Fees
Hidden fees are not confined to the automobile industry. Travelers often encounter mysterious “amenity fees” at hotels, while apartment complexes charge extra for using credit cards to pay rent.
Similarly, event tickets come with “convenience fees” that hardly provide any real convenience. Such practices are increasing as sellers seek ways to transfer high costs to consumers, a trend referred to as “drip pricing” by policy experts.
Drip pricing has long been used to break down the total cost of a product into multiple parts, becoming more prevalent as online shopping became the norm. This approach allows sellers to sidestep easy comparisons of product prices, making it harder for consumers to know the full cost upfront.
Sara Fisher Ellison, an economics professor at MIT, noted that fees that appear at the payment stage complicate price searches for consumers, which is precisely their intent.
The Effects of Inflation on Pricing Strategies
Inflation is a factor driving sellers to move costs onto consumers through various fees. In addition to price hikes, companies are also finding ways to improve profit margins by reducing package sizes or requiring shoppers to take on more work themselves.
According to Ellison, retailers are experimenting with less visible price increases, which may be easier for consumers to tolerate than straightforward price hikes.
A current example of drip pricing is seen in restaurants adding fees to bills instead of adjusting menu prices. Leslie Whitney, owner of Virginia’s Sunset Grill, explained to CBS affiliate WTVR that frequent menu updates would be impractical and time-consuming. Instead, they opted for adjustments to recoup losses.
Consumer Sentiment Towards Hidden Charges
A survey conducted by Consumer Reports in 2019 revealed that 85% of individuals have faced hidden fees, with these charges most prevalent in internet and cable services, as well as live events. Predictably, 96% of respondents expressed their dislike for such fees.
Research indicates that sellers can increase profits by concealing prices. The advent of internet technology has facilitated this practice, simplifying the process for businesses.
Ellison remarked that previously, sales teams had to convince customers to buy pricier products, whereas online platforms can be designed to do this automatically.
Transparency, however, does not always guarantee a business’s success. For example, ticket vendor StubHub once tried to eliminate fees in favor of clear upfront pricing but quickly reverted to their previous model after losing customers.
Max Sarinsky, a senior attorney at the Institute for Policy Integrity at NYU, highlighted that drip pricing creates an unhealthy competitive environment where sellers must advertise deceptively low fees to remain competitive.
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Consumer Action Against Surprise Fees
Last year, the Institute for Policy Integrity petitioned the Federal Trade Commission (FTC) to ban drip pricing practices, gaining support from consumer rights organizations and ticket vendors alike. Historically, federal responses to misleading fees have been minimal, consisting mainly of warning letters to hotel chains.
However, recent proposals from the FTC aim to limit surprise fees and bait-and-switch advertising in the automotive sector, while the Consumer Financial Protection Bureau is scrutinizing junk fees in finance.
Though individual consumers may feel powerless, there are steps they can take to reduce surprise fees. Syed Ejaz, a financial policy analyst at Consumer Reports, suggests that complaining can be a powerful tool.
According to the survey, only a third of respondents attempted to contest surprise charges, yet among those who did, two-thirds succeeded in having the fees waived.
Ejaz emphasizes the importance of voicing concerns to the company. Whether through formal complaints or direct communication with sales personnel, he encourages consumers to express their dissatisfaction, as it’s often worth the effort.