Blogger gets gouged: hotel pricing Miami style
Inconspicuous Discounting
I was browsing in a well-known North East department store this week when I spotted a winter coat that I have had my eye on for some time. Having decided to splash the cash, I was surprised to find a 20 per cent discount applied at the till - a welcome surprise! But there were none of the usual “sale” signs obvious within a store that was busy without being buzzing.
I took the discount without blinking but an article in the Financial Times today reminded me that the inconspicuous sales are becoming more frequent especially among niche retailers towards the higher-end of the retail market. Luxury shops are making greater use of private invitation-only evenings where valued customers can be wined and nudged gently into pre-ordering new products or persuaded to buy up some of the excess stock.
Here is the link to Sarah O’Connor’s piece on discreet discounts.
Just a few months ago sales of luxury products were thought to be immune from the ravages of the credit crunch. But the collapse of investment banks, a steep decline in city bonuses and thousands of job losses in financial services have contributed to a sharp fall in demand for high-value luxuries. The income elasticity of demand for such goods ought to be strongly linked to the economic cycle - we are seeing growing evidence of this now.
But for retailers selling top-end brands who have rarely had to use deep price discounting to shift modest amounts of stock, these are unchartered waters. The danger is that if they cut prices too far their customers may begin to anchor downwards the prices that they regard as a fair reflection of the quality of the products they are buying, and perhaps devaluing the excitement of buying a specific brand?
Price anchoring is an important feature of the behavioural patterns of consumers - I wrote about it in June with a blog about the pricing of the iPhone. - for products such as jewellry, designer clothing, the best seats for the theatre, perfumery and bespoke furniture (there are many other examples) the first price you experience for a product when you enter the market can act as an anchor for what you might be prepared to spend the next time around. The luxury retailers will want to avoid a situation where an eventual economic recovery might start with consumers having lowered significantly their price expectations for discretionary purchases.
Perhaps that is one reason for the invitation-only events for regular customers. The luxury shops are happy in the current climate to offer a generous discount but they want to keep it under wraps reserved for people who they know will return when demand and prices are back to normal levels.
Snack attack
Street hawkers normally have an instinctive ability - honed through several generations - to spot well-heeled tourists a mile off and engage in a spot of first degree price discrimination and exploit informaton failure among confused jet-lagged travellers. Here is a neat short story of a Dutch couple who may just have bought the most expensive plate of four samosas in commercial history. Then again, perhaps they were just the first to complain to the local police.
The article is also memorable for alerting us to the availability of camel urine - a bargain at just over £1.34 per litre.
Pricing of My EconSpace
An email found its way to me today from Pearson Education regarding the launch of their new online diagonistic assessment website (why dont they just call it a VLE) My Econ Space
It provides an interesting slant on pricing for an externally hosted online service for students and their teachers.
read more...»Getting your skates on - supply responds to demand
The economy might be skating on thin ice, but the market demand for artificial skating rinks shows no sign of melting away judging from the number of temporary ice rinks that are springing up across the length and breadth of the country.
read more...»The Economics of Hotel Deals
e-break deals from the likes of Marriott Hotels regularly end up in the junk-mail bin. But this advert prompted a lively classroom discussion….
read more...»Maintaining profitability in the airline industry
My students have been tackling this assignment this week as part of their microeconomics course.
(a) Many airlines have reported heavy losses and several have already gone into administration or filed for bankruptcy. Using cost and revenue diagrams, explain why airlines have been experiencing such losses (15)
(b) Discuss the ways in which airlines can control their losses and continue to operate profitably in an industry where costs and revenues are unpredictable (15 marks)
Answers to part (b) sort the wheat out from the chaff!
read more...»Price gouging in Edinburgh
Jimmy Chung’s in Edinburgh occupies a prime location between Waverley Station and Prince’s Street - it appears to thrive on a fast flow through of customers eager for a quick fill of chinese food - it needs the high footfall to pay what must be a hefty rent. An obvious approach is to engage in some price gouging - serving fixed price meals at different prices according to the time of day - all prominently displayed as shown. I will use this with my introductory Economics students in a few weeks time.
read more...»Madonna’s pub accused of price gouging
It sounds like a classic case of price gouging or price discrimination and it is a bitter blow for non-regulars at the pub owned by Madonna and Guy Ritchie. Several newspapers have relished the news that the Punchbowl in Mayfair has been charging different prices to different customers for the same drink - segmenting the market between regulars and occasional visitors. The Telegraph reports that Brian Richardson, 52, who has been a customer for 12 years, was charged £3.50 for a pint one day, and £3.90 the next. He said: “I was shocked. I complained to staff. They have got two prices - regulars prices and non-regulars prices.”
It is not often that I link to the business stories covered in the Daily Mirror - but here we go!
Plenty of room at the Beijing Inn
The long awaited financial bonanza for Beijing’s hotels during the forthcoming summer Olympic games seems less likely to materialise with the news that many 3 and 4 star hotels remain vastly under-occupied with the games just a few days away. It seems that the expected influx of nearly 500,000 visitors from overseas will prove to be an over-estimate - tourists appear to have been put off by the cost of travelling, fears over security and the time and expense of arranging visas. Domestic visitors from elsewhere in China seem to have been affected by the massive earthquake in south-west China and the snowstorms that struck the south in February.
The response of hoteliers when market demand turns out to be lower than forecast is a classic form of second degree price discrimination - reducing rack rates in a bid to increase the take up of unsold rooms. Given the travel distances involved, it would appear unlikely that the price reductions will have much impact in enticing people onto planes bound for Beijing this August. Most of the four or five star hotels will already be full of Olympic dignitaries most of whom wont have to pay a penny for their time at the Games.
Apple’s dilemma resolved by falling pound
Earlier this year Apple was accused of engaging in some blatant price discrimination by selling download tracks at a higher price in mainland Europe compared to the UK. They responded by saying that they wanted to bring in a “standardised price” within months. Well now the falling pound against the Euro seems to have done the job for them - according to this BBC report - “exchange rate changes since January mean 0.99 euros now equals 79p, meaning no price cut is necessary, Apple said”
Still no explanation for why download prices are cheaper in the USA? I haven’t downloaded a song from iTunes for months - there is now much more competitoon - but I am happy enough downloading the free podcasts to keep me happy!
Fares fair?
For occasional taxi journeys from my home to and from Heathrow and to my local station at Slough I am almost completely price insensitive. But in central London I do weigh up the costs and benefits of jumping in a taxi for shorter forays. This is a terrific article on the cost pressures facing London’s metered cabs whose prices are capped by Transport for London. Earlier on this year, the price of metered can journeys was raised by 2.7% - below the CPI and RPI rate of inflation and nowhere near the increase in the cost of fuel at the forecourts.
read more...»Price discrimination for Big Macs
Is the Big Mac about to be the test bed for a fresh example of price discrimination?
read more...»Canny pricing in a slowdown
There is a super feature on pricing strategies from Adam Jones’s management blog on the Financial Times web site - available here
Canny businesses are willing and able to adjust their pricing strategies to suit ever changing business consumers. The key seems to be in having good market intelligence about which consumers have a demand that is sensitive to price and those who spending on goods and services is affected more by changes in real take-home income. Deep discounting is often observed in an economic slowdown or outright recession as businesses look to shift unsold stock, maintain sales volumes and generate extra cash to tide them through the tough times. But as the FT blog points out, offering discounts to consumers can risk unleashing an unwelcome price war (which damages profit margins) and overly-aggressive discounting can ultimately damage the brand.
There is a bit more on pricing do’s and don’ts in a recession here
Battle of the energy drinks
I popped into my local Sainsbury’s this morning for the groceries and I came across a staggering price differential between Red Bull - 250ml individual cans on sale for 88p or a pack of 4 for £3.29 - and Sainsbury’s own-brand caffeinated drink Blue Bolt which has been on sale for some time at just 26 pence for a 250ml can - less than one third of the price of a can of Red Bull.
read more...»Revision: Business Pricing Strategies
This two page revision note is designed for A2 economists and considers some of the factors that can influence the pricing behaviour of businesses - notably a move away from maximising behaviour when setting prices and the impact of increased market contestability and technological change.
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Popcorn and price discrimination
Why do movie theatres sell popcorn, coca cola and hot dogs for such high prices?
On the surface it looks like a classic case of the movie theatre being able to capture the consumer surplus of cinema-goers once they have bought their ticket to see a film.
Say for example you might have been willing to pay £8 to see There will be Blood at your local cinema, but that the ticket price is £6. That implies a consumer surplus of £2. The cinema might try to extract that from you by raising the price of your carton of popcorn well above the marginal cost of supply; you feel like you have got a good deal by getting in to see the film for £6 and psychologically you are perhaps more willing to fork out a little extra for your movie fuel. After all, once inside the theatre, you are hardly likely to go through the hassle of exiting back onto the high street to find a cheaper supply of pop corn or drinks?
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