The Secrets of Shipping and Other Added Fees

Episode #7 of the course Price psychology by Andy Luttrell

I have gotten so used to free two-day shipping that when I’m thinking about ordering from somewhere else, any amount of shipping and handling cost throws me off. But there used to be a time when shipping and handling was just a common feature of mail-order shopping.

Shipping fees are just one type of surcharge. There are plenty of surcharges that exist, and they make people (including me) irate. The added hidden fees for “processing,” “printing,” etc. And these surcharges can make or break a sale.

The question for price psychology is: is it better to show people the surcharge or lump it in with the total cost? For example, is someone more likely to order something that’s “$12 + $3 shipping” or something that’s “$15, shipping included”?

In general, studies show that the first option is more effective. People are more likely to buy when the price is presented as a base price + an extra fee. Consumer psychologists call this “partitioned pricing,” and it works because people are paying attention to the price of the item—not the shipping fee. Compared to $15, $12 is a steal!

This is what can happen with tipping at restaurants in the United States. People focus on the prices on the menu. It’s not until later that they factor in the tip and tax. Increasingly, though, restaurants are doing away with tipping and simply charging an adjusted price for the menu items. It’ll take some time to get over the price shock—even though the amount we’re spending won’t be different.

But what about when there are multiple surcharges? Is it better to present each surcharge separately or lump them together? Would people be more likely to buy something that’s “$12 + $3 shipping + $2 tax” or something that’s “$12 + $5 tax & shipping”?

According to the research, it’s a better idea to combine fees into a larger single fee. One study testing the effects of partitioned pricing and online sales found that a larger combined surcharge performed better than splitting it into two smaller surcharges. They call it “consolidated surcharges.”

So there it is. Even when there are added fees and unwelcome surcharges, there’s always more to discover about how people think about prices. In this case, it seems that people are more likely to buy when they see a relatively low price plus a single surcharge.

For a quick summary of some of the pricing tricks in this Highbrow course, check out “5 Stunning Examples of Price Psychology.”

Recommended book

“The Paradox of Choice: Why More Is Less” by Barry Schwartz

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