Sunday, May 28, 2006

Price differentiation in everyday life

Lets say that you are a company that sells products: You have all kinds of customer, some rich, some poor, some price oriented, others service oriented (yaya, from our marketing class). To maximize profit, should a company charge the same price for everyone or should they charge different price for different customer? The answer of course is that you charge higher price for people who are less price sensitive and lower price for people who are more price sensitive.

Amazon.com has experimented with this kind of multi level pricing a few years ago by charging different type of customer different price. This, however, has provoked a public outcry because it is illegal and they have since stopped doing that. But does it mean that discriminatory pricing is non existant in our society?

Take a look at the picture at our left. The upper one is a discount coupon you receive when you buy certain things while the one below is a fidelity card in which you accumulate points for future purchase voucher. As a customer, it usually means an extra hassle or even embarrassment (if you want your cool image to remain cool, you don't want people seeing you use all these things :) ) to use these promotional items. If the supermarket really want to reward their "loyal" customers, why not just reduce the price straightaway instead of creating a few more unwanted hurdles?

The answer lies above, discriminatory pricing raises profit: People who uses coupons and fidelity cards are usually mid to low income earners while those rich customers or rich-wannabes won't even bother using them. By making sure that different customers, according to their price sensitivities, pay different price indirectly, they maximize potential customer and profit.


-gAvIn-

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