Inflation and Drip Pricing
Market Commentary

The Markets

In November, investors were more optimistic as news on inflation calmed down and the war in the Middle East was not escalating on a global level. Both of these items calmed markets and money that was pulled out of the last three months was coming back into the stock market.

Stocks moved higher recently as many investors remained confident the Federal Reserve was done raising rates. Some anticipate rate cuts early next year, reported Barron’s.

Drip. Drip. Drip.

As inflation recedes, fees and charges may continue to affect the cost of some goods and services. Last summer, NPR’s Stacey Vanek Smith reported on the phenomenon after having lunch delivered.

“I decided to splurge and order a burger and fries for delivery. Subtotal for my meal? $14.07. A little pricey, but it’s a good burger and $14 seemed like a totally acceptable price for dinner, especially when it’s delivered to my door. Then came the fees: Delivery fee: $5.49; Service fee: $3; Tip: $4; Tax: $1.25. Grand total for my delivery burger: $27.81. My lazy Monday went from costing me $14 to almost $30. The price had doubled. What was going on?”

The answer is drip pricing. It happens when the price of a good or service is broken into multiple components that the buyer becomes aware of as the purchase proceeds, according to an article published in the Journal of Economic Behavior and Organization.

Many industries employ this pricing strategy. For example, travelers may purchase airline tickets by choosing the lowest base price and then find themselves paying additional fees to check bags, select desirable seats, or to sit in seats adjacent to younger family members.

One luxury automobile company added a new twist to car buying. It asked buyers in the United Kingdom, Germany, New Zealand, and South Africa to pay a subscription fee to activate its factory-installed seat warmers. The automaker eventually abandoned the subscription, but it plans to expand pay-on-demand services. In an interview with James Attwood of Autocar, a company board member explained:

“We actually are now focusing with those ‘functions on demand’ on software and service-related products, like driving assistance and parking assistance, which you can add later after purchasing the car, or for certain functions that require data transmission that customers are used to paying for in other areas.”

Focus – Think About It

It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so.

Will Rogers


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