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Supermarkets, banks among businesses ‘exploiting’ customers in competition vacuum - here's how

Drip pricing and ‘excuse-flation’ are some of the pricing practices being used by big business.

Supermarkets, banks and other big businesses are using “exploitative” pricing practices to charge customers more, the damning report into price gouging has found.

The ACTU inquiry, led by former consumer watchdog chairman Allan Fels, identified a series of “exploitative business pricing practices” being used by companies to extract extra dollars from customers.

While not unlawful, the report noted these practices reflected an “imbalance between consumers and the power of business” and would not be possible if the market was more competitive.

Airlines, supermarkets and energy.
Big businesses - including airlines, supermarkets and energy companies - are using these pricing tactics to charge customers more, the ACTU report found. (Source: AAP/Getty)

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Here’s a rundown of what some of those sneaky practices are and how they are being used to make you pay more.

Drip pricing

Ever seen a product advertised for one price, only to be hit with extra charges as you reach the checkout? This is called drip pricing. You often see it in airlines, accommodation, entertainment, prep-paid phone charges, credit cards and medical procedures, Fels said. These extra charges include things like booking fees and service fees and can be mandatory or an optional add-on.

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Excuse-flation

This is where businesses use “general inflation” as an excuse to hike their own prices without actual justification. Consumers aren’t really able to tell whether the price hikes are legitimate - and due to the business’s own costs increasing - or not. The report added it was more prevalent in the current inflationary environment.

Rockets and feathers pricing

When costs rise, they can go up quickly like a rocket, but when they fall, they can float slowly to the ground like feathers. This is known as ‘rockets and feathers’ or ‘asymmetric’ pricing. Fels said delaying price falls could be “very profitable” for businesses and pointed to recent lamb prices, along with bank interest rates, insurance premiums, and fruit and vegetables.

Loyalty taxes

This is where prices are initially set low but then sharply increase over the following years. This can happen in industries where it is difficult or expensive for customers to switch to an alternative. The report pointed to insurance, banks and energy as examples.

Confusion pricing

This involves using confusing, complex price structures and plans that make it difficult to compare prices. Fels said it was happening more and more in the telco, financial and maintenance services industries.

Price discrimination

This is where businesses charge different customers different prices for the same product, usually based on how much a customer is willing and able to pay. For example, banks who offer better rates to customers who are likely to leave them, and medical specialists who the report noted offer "vastly different prices for near identical services". The report noted the rise of digital platforms was making the issue worse, with companies able to get more detailed customer data.

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