The Chicago-based ecommerce firm 'Quality Logo Products' has launched "surprise free pricing", where all fees are shown directly on the initial price tag. According to the firm, this initiative is a response to the various 'hidden fees' that ecommerce firms charge customers, such as credit card fees and delivery fees, creating uncertainty around the total price that customers will have to pay.
While the firm report positive reactions from customers, there is, indeed, a downside to this strategy. The idea behind hidden fees is to make customers commit before facing the final price.
Product A costs $15, with an additional $6 delivery fee and a $0.50 credit card fee. A customer whose willingness to pay is $20 will not put this product in his basket if initially faced with the total price of $21.50. However, if the initial price he faces is $15, he probably will. While he should, in theory, decide not to buy the product when he eventually discovers the additional fees, the fact that he made the commitment that is putting the product in the basket, entering his payment- and delivery information, etc., may cause him to buy anyway. Alternatively, he would have to make the same commitment on another website, and even if he could find a cheaper product that matches his willingness to pay, the 'cost of his commitment' that he perceives, could make the cheaper option suboptimal.
This is a clear downside; however, there is, of course, an upside to it, too. While delivery- and credit card fees may be hidden, most customers know that they're there, and so, it's not completely unexpected when they are disclosed. In some cases, the customer may even know what these fees are if they have used the platform before. However, in cases where they don't, they will make an estimate before proceeding with their purchase. Risk-averse customers tend to make an estimate that is higher than the fees they actually face, and by disclosing the fees, such estimates are no longer needed. Moreover, 'trust' is a central element of brand loyalty, and consequently, surprise free pricing can contribute to the loyalty of the firm's customers, especially if these customers are risk-averse.