Are Hidden Fees the New Normal? A New Columbia Study Investigates
How have hidden fees become such a normalized part of the consumer process? Columbia Business School recently investigated the unfortunately common practice.
According to new research, entitled “The Price Does Not Include Additional Taxes, Fees, and Surcharges: A Review of Research on Partitioned Pricing,” “consumer transactions are more likely to involve an additional surcharge now than they were two decades ago.” This evolution may not come as a surprise to most readers but our reactions to the practice known as “partitioned pricing” (PP) might. Fees related to cell phone service, baggage, fuel, and hotel accommodations, for instance, have become standard practice but we are still collectively parsing together how comfortable we are with PP.
Center for Decision Sciences Director and Professor Eric Johnson explains, “From regulatory efforts to pricing strategies, policy makers, researchers and marketing managers need to better understand the way that consumers evaluate and feel about partitioned pricing.”
Johnson’s research “identifies six different dimensions by which consumers experience partitioned pricing,” which could assist public policy makers, among others, “establish regulations to improve consumers’ understanding of PP, so long as they first understand at what stage the misunderstanding originates.”
Stage 1: Attention to different PP price components: “If consumers don’t comprehend the multiple pieces that compose total price, they are more likely to underestimate the total cost.”
Stage 2: Attitude toward the use of PP for this product: “From feelings about the fairness of surcharges to their perception of the seller, consumers come to the table with pre-conceived views about PP.”
Stage 3: How consumers combine price components to form a perception of total cost: “Whether people ignore surcharges or factor them into the total price, consumers arrive at an overall perception of a product’s total cost.”
Stage 4: How consumers evaluate product benefits: “When consumers evaluate a product, they may consider other attributes besides price, which may affect their perception of PP in overall cost.”
Stage 5: How consumers competitively evaluate the overall product offer: “This is the combination of stages three and four by which the consumer forms a full picture of the product.”
Stage 6: Post purchase perceptions of the firm and buying experience: “If consumers perceive PP to be unfair following a purchase, they will be more careful with future purchases that use PP.”
About the Author
Jonathan Pfeffer
Jonathan Pfeffer joined the Clear Admit and MetroMBA teams in 2015 after spending several years as an arts/culture writer, editor, and radio producer. In addition to his role as contributing writer at MetroMBA and contributing editor at Clear Admit, he is co-founder and lead producer of the Clear Admit MBA Admissions Podcast. He holds a BA in Film/Video, Ethnomusicology, and Media Studies from Oberlin College.
