What does ‘price discrimination’ actually mean?
I just looked at chickens in Tesco, they are £4.00 each or 3 for £10. Why do you have to pay a 1/5 more if you only want one? Is this discrimination in favour of families or against single people?
You could buy three chickens and sell a couple to your neighbours for £4.00 each and keep one for yourself… You would need to be lucky to find a couple of neighbours who wanted a chicken at the same time as you though…
Buy one get one free is also price discrimination but it doesn’t end there. If you want the latest gadget, you might face price discrimination again. The price is often loaded for products that as seen as new and the latest big thing. This can be the new smart phone, the new movie at the cinema, the latest computer game or the latest fashions. The big multinationals are experts at pricing at ‘what the market will stand’ and making their products appear to be fashionable and desirable in order to get a higher price. They will often discriminate against people who simply have more money (and are easily parted from it). They exploit human weaknesses and prey on people with low self esteem. They offer them coffee from the finest Arabica beans in a trendy setting where they can imagine they are someone for a while. They can show off their designer clothes and play with their smart phone in public in a narcissist display for less than a fiver.
People are brainwashed by repetitive slogans like ‘because you’re worth it’ and ‘taste the difference’. Companies try to convince them that the parfum de Francais will make them as beautiful and sophisticated as the model in the commercial. People tend to believe what they want to believe.
Telecommunication companies in the UK charge customers around 50% more for their line rental if they pay monthly as opposed to paying annually. Insurance companies will charge 10% extra for car insurance if people pay monthly. Even the government is into price discrimination, charging extra to tax your car for 6 months rather than 12 months. The government will often quote figures that aren’t a percentage of what money they are spending. They will cut billions from welfare and tell us how much, but when it comes to how much we contribute to the European Community it’s a small percentage of Gross Domestic Product.
Energy companies have their standard tariffs that discriminate against anyone who can’t be bothered to ask for a better tariff. Pre-payment tariffs discriminate against the poorest in society. The more financially savvy get the best tariffs because they ask for them and are prepared to switch to another supplier.
If the customer is willing to pay it, the company will take their money. The value of something, is what someone is willing to pay for it. The company has to cater for everyone, the feckless who will buy the goods at almost any price and the thrifty who will shop around and walk out rather than pay £4.00 for a chicken. How does the supermarket sell chickens at £4.00 to people willing to pay £4.00 and make them available cheaper for people who aren’t willing to pay that? They use price discrimination. The people willing to pay £4.00 get charged £4.00, the thrifty will buy 3 for £10.00 and talk a neighbour into having one or freeze a couple.
Price discrimination also applies to loans and credit. The feckless get a credit card with an interest rate of 40% or more because they are considered a bad risk. Most people will get a credit card with a interest rate in the 15 – 20% range. The thrifty and frugal will get a credit card with an interest rate below 10% and then not incur any interest on it. The same thing applies to loans, the more you are willing to pay, the more money the banks will take in interest.
Which would you rather have a brand new car or one that is 3 years old and has been tested and has shown to be reliable. A new car is good for your image. Right? It will go with your designer clothes, chronograph watch and Italian leather shoes. The car showroom is quite posh, they can afford a posh car showroom with price discrimination. As soon as you have driven your new car off the forecourt, the ‘new’ tag has gone and so has thousands of pounds of your money.
Do you really need a new car? Need to see the latest movie? Need designer clothes? Need a watch that tells you the time in Beijing? Yes? Thanks so much! You help pay for all the stuff I need! Makes you think, doesn’t it?
There are more more amazing blogs on a zillion ideas today. If you see an article about price discrimination on a well known financial website in the coming weeks, you’ll know where they got the idea from! Finally, a question… Is the government itself, a victim of price discrimination?
- Price discrimination without coercion: the Humble Ebook Bundle (boingboing.net)
- Giving customers the opportunity to pay what they want works (guardian.co.uk)
- 11 Simple Economic Lessons To Make You A Smarter Shopper On Black Friday (businessinsider.com)