/ Money, Shopping

Would you be happy to pay more for the same thing?

38
price discrimination
Profile photo of Yvette Fletcher Yvette Fletcher Principal Researcher and Writer
Comments 38

We all get excited when we get a good deal on something we buy. But what if other customers are being charged more for no good reason?

Like many of us, I love a good deal.

I also happen to be from New Zealand, so (while I enjoy living in the UK) I’m always looking out for a reasonably priced trip home.

Late last year, I was incredibly excited to discover flights from London to Auckland for just £415 return departing in March. Typically, I’d consider £600 ‘cheap’. Of course, I quickly snatched them up and am still feeling pretty chuffed with my luck.

But I’ve recently checked the prices again and discovered that passengers next to me could have paid more than three times as much to make exactly the same journey. This is a fact I’m sure they’d be far less impressed with. I guess I should let them have the middle arm rest?

One product, two different prices

This isn’t unique to flights, of course – it’s everywhere.

And economists have a name for it: price discrimination. Broadly, it means people paying different prices for the same thing.

The charges have to differ for reasons going beyond the basic costs of supply – if you get charged more for something because the cost of raw materials has risen (for example), then that’s not price discrimination.

But sometimes retailers charge different amounts for other reasons, such as the demand for their product is higher at particular times of day.

Sometimes price discrimination can be good – such as with pensioner discounts. But it can also be hidden from consumers.

How price discrimination works

So what is price discrimination like in practice? Here are a few examples of the different methods retailers can use, which, depending on your point of view, could be seen as good or bad.

  • Demand: cinemas and theatres charge more for you to attend on weekends and taxi-competitor Uber charges ‘surge’ prices during busy times, such as on New Year’s Eve. With the latter, this will mean that more drivers come on to the road, so you’re more likely to find a cab to take you where you want to go.
  • Location: pricing can change based on suburb, city or country – one example we came across was a Eurostar trip from Brussels to London in Business Premier which cost £245 on the UK site but €330.50 (around £280) on the Belgian version.
  • Convenience: we explored how much convenience supermarkets charge when compared to the nearest equivalent supermarket. We picked a basket of goods and found it was up to 7% more expensive at a convenience supermarket.
  • Personalisation: if retailers have access to information about you, it’s possible this could be used to affect pricing. A basic example is loyalty cards, which can lead to you being offered discounts on certain products.
  • Loyalty: mobile phone, subscription TV and broadband providers will often give exclusive offers to loyal customers to try to keep them. For example, if you call to cancel, you may find you get offered a discounted rate.

Can you think of any price discrimination you’ve spotted recently? Are there examples you’ve felt were good and fair, or does it always feel like you’re on the unlucky side of things?

Comments
38
Ian says:
23 March 2017

Part of this is the Supply and Demand ‘law’ that permeates our society. It’s the same reason as holidays are cheaper if you book them out of term time or train tickets cheaper if you book them well ahead. That latter can be tricky, however; the big train companies are not always crystal clear about when you can book. They quote 13 weeks, but to get the best deals and the best reserved seats you need to start monitoring the train website from the 13 week mark, and the best offers will appear between then and 10 weeks ahead. Even the staff are never quite sure when it will happen.

Last week they were offering all-inclusive ten-day holidays in a five star hotel in Turkey for £230 pp. Great if you have the time to monitor the offer sites, but not so good for those in full-time employment or busy elsewhere .

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VynorHill says:
23 March 2017

I can understand the convenience store basket price you mention. It is often more difficult to supply and run these places and we buy less from them in one visit. We are in fact paying for the convenience of local shopping, sometimes from stores which don’t belong to the large chains. As Ian says, supply and demand, especially in the travel and holiday industry is used to vary prices for the same product/journey. What is sad is that it is now financially impossible to turn up at a train station and buy a ticket, something we could do in the past without breaking the bank. Thus the various web sites trade tickets and hotel rooms and forward planning is essential. Using the car one knows exactly what the journey will cost every time though we usually ignore the background costs associated with running a vehicle when calculating this. Where supply and demand is unfair is when a company makes a massive profit, because it can rip off its customers. In that case, those foolish enough to buy ruin the chances for the rest of us and both customer and supplier are guilty of ripping off the public.

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John Ward says:
23 March 2017

Yvette – You say “we explored how much convenience supermarkets charge when compared to the nearest equivalent supermarket. We picked a basket of goods and found it was up to 7% more expensive at a convenience supermarket”. It is not clear what you mean by “the nearest equivalent supermarket”. Do you mean another convenience store operated by the same company, another convenience store operated by a different company, or a large supermarket operated by the same company but possibly in an out-of-town or edge-of-town location so not necessarily convenient? Although they sell a wide range of goods, convenience stores are not usually regarded as supermarkets. The picture is further confused by stores like Aldi, Lidl and the Co-op which are bigger than convenience stores but are not full supermarkets. Another complication is that some large supermarkets are categorised as superstores because they are much larger and also sell clothing, homewares, tech products, etc and offer a range of other services.

I presume you are referring to the Big Four supermarket operators [Asda, Morrison, Sainsbury’s and Tesco] which often have a ‘mini’ version within a mile or two of a major store and there is a price differential between the two.

I was thinking about this only the other day when we were passing a Tesco Express and stopped to pick up a few things and I noticed that a packet of Tesco biscuits was 65p whereas in their major store the same product was 60p. There is therefore an 8.5% ‘premium’ for shopping in a ‘local’ or ‘express’ convenience store. My immediate thought was that there had been a price movement between my previous purchase and this one, or that the quantity/weight was bigger for the small shop packet, but I have subsequently checked and it is a true like-for-like comparison. I have not done a price comparison on the other items we bought.

In some villages and suburbs the only grocery retailer is a convenience store operated by a major supermarket operator and much of the fresh produce is supplied from their nearest large supermarket acting as the mother ship. One alternative to shopping there is a journey [possibly several miles] to the large supermarket so in terms of cost there might be little difference or it might actually be cheaper to use the convenience store if it sells all you want. On-line ordering and home delivery is another option which brings the full choice of goods at the large supermarket prices but might not be so convenient as it requires a degree of planning and organisation. The third alternative might be an independent or franchised street-corner mini-market type of shop that might have a more limited choice of products and almost certainly higher prices than a major supermarket’s local version.

Some people use convenience stores to avoid the temptations of a large store and to keep within a tight budget. To some extent they are paying more than they could but they achieve their primary objective. For some shoppers, time has a value and justifies the speed and convenience of local shopping, especially for top-ups.

I should be interested to know how sensitive the local branches of the Big Four are to price competition from discounters like Aldi and Lidl if they are within a mile or so – this is now quite commonplace as the discounters have invaded territory previously regarded as their own by the Big Four’s little brothers.

My overall conclusion is that convenience comes at a price which might or might not be worth while – it is up to each customer to make that assessment based on a range of factors including time, distance, choice, and total price for a basket of groceries and provisions. I happen to think the big boys are milking it and, as Ian says above, it’s a result of supply and demand and what the market will bear.

I think this particular aspect of price discrimination would justify an article on its own taking in the whole spectrum of shopping provision and the different economics, including competition, that apply to it.

A final thought – do the products supplied to the convenience branches of the Big Four have different bar codes to those in their large supermarkets, or is the bar code recognition system in each branch tuned with a set of prices unique to that branch? If the latter, is that done locally at branch level or is it controlled and implemented remotely from head office [including shelf-label management]? I can only imagine there is a considerable hidden infrastructure supporting this operation with checks on prices in other competitive shops in the vicinity and sophisticated yield analysis of on what and by how much price differentials can be applied. This all feeds into the pricing and makes you wonder whether it is worth it.

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Melanie Train says:
23 March 2017

I’ve now added in a link, which may clear up some of your queries, John.

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John Ward says:
23 March 2017

That’s helpful, Melanie – thanks. The word “equivalent” still makes a strong appearance in the linked article, however, and in most instances I feel “counterpart” or “same company” would be less confusing.

A clarification I would also make is that many of the major supermarkets’ local convenience stores are not in high streets [as exemplified in the article] where alternatives often abound but in more isolated locations like villages and suburbs where they have wiped out many individual traders like grocers, butchers, bakers, greengrocers, and so on, who supplied local produce at economical prices, so the convenience store customers now have to put up with almost stale “fresh produce” sold at high city prices.

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malcolm r says:
23 March 2017

This concept of “freshness” would be useful to explore. My usual supermarket sells most produce with sell by/use by dates, and is wrapped, often in a protective atmosphere, to keep it fresh. Some fruit is marked ripe and ready to eat – which it is.

I wonder how fresh independent shops produce really is? Our butcher displays meat in the window open on trays, undated. What happens to the unsold meat? I doubt it is thrown out; probably keeps reappearing until bought. Our local farm shops display pies and bread unwrapped; presumably returned to stock when unsold at the end of the day. I’ve just walked through our local market – bread and pies again unwrapped on display. A stall with fish sitting on ice in the open, unprotected; what happens to it at the end of the day – saved for the next market?

I was brought up on food from traditional greengrocers, bakers, butchers and fish shops and lived to tell the tale. Unknown freshness, undeclared contents of sausages and pies. But I would hazard a guess that supermarket food is kept better and is fresher. But we pay for that of course. I place considerable importance on the freshness and quality of food, primarily because I like to enjoy what we eat, and am prepared to pay for that.

Maybe we could investigate just how fresh different outlets are and how well looked after is the unsold stock. Maybe we would get a nice surprise?

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John Ward says:
23 March 2017

I am sure that, in general, the national supermarkets have better food-chain management than independent shops and keep and present food responsibly to protect it and maintain its condition. Good butchers with a top hygiene rating will also maintain the highest standards; unsold meat might be safely reprocessed for human consumption and eventually goes to meat renderers.

My reference to “almost stale ‘fresh produce’ at high city prices” was in respect of things like bread, cakes, fruit, and vegetables that are exposed for sale in Tesco Express or Sainsbury’s Local stores and those of the other major supermarkets. They get just one delivery a day early in the morning and sometimes the produce looks distinctly unappealing for a range of reasons. I am satisfied that it is stored and presented safely although I worry about the way some of it is handled by other customers when it is lying in open racks or trays and there is no shopworker present to oversee it.

I must admit I prefer everything to be wrapped and sealed properly according to its characteristics and am happy to meet the cost but even in the major supermarkets we still select loose fruits and vegetables as the pre-packed ones are not always what we want or contain too many units.

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malcolm r says:
23 March 2017

Supply and demand is the key to much pricing; you say “if you get charged more for something because the cost of raw materials has risen (for example), then that’s not price discrimination”. Raw materials are a classic “supply and demand” example – prices go up if they become scarce, more people want them,or supply is artificially constrained (e.g. OPEC and oil).

Supermarket branches of convenience stores may well have higher costs – more staff per sale, more expensive buildings and location then their larger sheds. Should they be subsidised by their larger stores?

Airlines used to sell seats in bulk to “bucket shops” to help fill planes, which gave rise to price disparity. I presume, like other transport, this helps increase or even-out capacity , helping with costs. Encouraging people to travel off-peak on rail makes better use of excessive rolling stock.

“Loyalty” discounts have an equivalent in new customer offers – a cheap deal for the first 12 months on your broadband or insurance for example.

These have always been part of commerce, just like “sales”, and they won’t go away. So the answer is to make use of them. Being savvy and putting in the groundwork will always be required, whether we like it or not.

Someone complained recently about paying £1500 for 4 music tickets; yet they still bought them. Presumably they had sufficient value for them to do this.

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John Ward says:
23 March 2017

Travel and holiday pricing is an interesting subject. Prices are set at the outset but offers and discounts usually accompany them. Then as places are taken the prices normalise with little room for adjustment. As the critical date approaches prices for new customers actually rise, only to drop like a stone in the closing period in order to fill up available capacity at just over the marginal cost. Any remaining places are flogged on a secondary market. This is how various travel websites first made their millions – by cornering the market in late deals [and eventually distorting it]. Upgrading is also used as a marketing tool; if higher-priced accommodation is not selling well travellers can be selectively upgraded in order to release more affordable or more easily marketable accommodation in lower categories. Careful selection of the beneficiaries of this practice according to their spending propensities can ensure that overall revenue is not impaired.

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Sophie Gilbert says:
23 March 2017

Indiscriminate capitalism at its best, folks, like it or lump it, sink or swim. My heart certainly sinks.

Travel, concert tickets, utilities, groceries, you name it, good for those able and willing to play the game, or able and lucky. Stuff the unable, unwilling, or unlucky.

I’d lump it more easily if the price differences weren’t so outrageous in certain cases. £415 x 3? Come on!! Simply outrageous.

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malcolm r says:
23 March 2017

I declare no expertise in airline costs, so looked at a couple of examples on the web. It suggested a typical large commercial airliner might cost roughly £7k to £14k an hour to operate – fuel, crew, maintenance, airport, capital cost. Based on this I calculate a per seat round trip cost – 45 hours, 440 seats – at from £715 upwards. On this basis £415 looks silly – 1.8p a mile.

I think when we look at costs we need more information to draw a rational, rather than an emotional conclusion. Maybe someone who really knows about airline costs could provide some real costs? Which? Travel might have access to such information? One way would be to look at a charter price.

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John Ward says:
23 March 2017

The prices will also depend on the first or business class/economy class split.

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malcolm r says:
23 March 2017

“Would you be happy to pay more for the same thing?” What shows this more clearly and on a grander scale than shopping on the internet? I am not sure what the proposition is in this Convo and where it is focused. Do you want everything to cost exactly the same for everyone? Clearly that will never happen. So do you want to draw some line?

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User 66219 says:
23 March 2017

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malcolm r says:
23 March 2017

I presume once fitted these jeans cannot be removed. Seems to fit the bill. 🙂

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John Ward says:
23 March 2017

This is ripe for some ribald comments but I will confine myself to saying that I have never worn a pair of jeans in my life and don’t intend to start now. Are they making the jeans for both sexes or only for men?

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User 66219 says:
23 March 2017

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John Ward says:
23 March 2017

That doesn’t exactly answer my question, Duncan, and I wasn’t enquiring whether Indian women would wear Durex brand jeans. You certainly seem to have a thing about what you call the PC Brigade. You’ve mentioned it in three different Conversations today. I must lead a sheltered life.

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User 66219 says:
24 March 2017

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Ian says:
24 March 2017

I did like your comment about ‘helping a female park when she is having trouble doing it’; started me chuckling and wondering if you’d ever offered a man the same assistance. Up here, certainly, the field is evenly split between men and women who cannot drive, park or manoeuvre, yet still seem to have a driving licence from when they first passed their test, probably in 1938.

Most people resent offers of help when doing something they believe they’re doing very well, and research indicates that’s most drivers 🙂 I watch with horror when some attempt to park – forwards – and those that can reverse around here seem limited to around 1% of drivers.

I’m not sure it’s the ‘PC brigade’ that causes you a problem, Duncan; I suspect it’s women. And there you are not alone, my friend 🙂

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John Ward says:
24 March 2017

Duncan – I care not for foul language irrespective of the class or sex of the utterer so you have my sympathy; it must seriously inhibit your gallant intentions. Fortunately we do not experience it in our part of the world where courtesy prevails and kindnesses are always appreciated.

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DerekP says:
24 March 2017

From the “defensive driving” training that I have received, it is good to be able to leave a parking spacing by driving forwards, and even better if it is a “drive-through” space, so it can also be entered by driving forwards.

I hold this to be guidance on good practice, and follow it much of the time.

But there’s nothing wrong with my driving – it’s just all the other idiots on the road!

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alfa says:
24 March 2017

Duncan, You can hold a door open for me any time you like and you will get a thank you. You can also expect me to open a door for you, (age before beauty, scat before the shovel, etc) and I would also expect a thank you.

I would be insulted if a man thought I needed help to park though for simply being female.

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John Ward says:
24 March 2017

Fortunately, motor manufacturers have come up with park-assist technology but I bet they have instructed their salesMEN to point out its features to prospective lady purchasers.

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Ian says:
24 March 2017

We have it but interestingly it only works for parallel parking. We’ve tried it for the novelty, and haven’t used it since. Both of us passed the IAM advanced tests, so we take pleasure in working on our driving, and we note points about each other all the time.

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John Ward says:
24 March 2017

So it’s no good for backing into a car park space? That’s a bit of a mouldy chizz.

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DerekP says:
24 March 2017

“Fortunately, motor manufacturers have come up with park-assist technology but I bet they have instructed their salesMEN to point out its features to prospective lady purchasers.”

Then again most cars – and seemingly all tradesmen’s vans – have long been fitted with “park anywhere lights”.

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Melanie Train says:
24 March 2017

Happy Friday all,

This convo seems to have gone off-topic somewhat. Please can we get back to the subject matter in hand and take any off-topic conversations to The Lobby. https://conversation.which.co.uk/travel-leisure/the-lobby/

Thanks

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User 66219 says:
24 March 2017

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John Ward says:
24 March 2017

I presume there is a building boom in New Zealand to replace the properties being sold to the Americans.

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Ian says:
24 March 2017

Yes; I suspect Estate agencies sponsored Lord of the Rings…

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Patrick Taylor says:
24 March 2017

Another article highlighting the way the world works and its inherent “unfairness”. It is rather like discussing the weather- fairly pointless unless you have a solution.

Perhaps to make it more interesting we should be discussing the 1% of the population who own 50% or whatever it is of the worlds wealth. That does seem unfair and yet probably something that could be remedied. This of course being an apolitical subject as I do not care what party they support.

And of course the discrimination as the rich pay percentage wise far less tax than most taxpayers – that is if they pay any at all.

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John Ward says:
24 March 2017

One of the unfathomable questions is whether those in the UK with relatively vast wealth lubricate our economy or are essentially extractive. The country seems to be in awe of ostentatious opulence but I consider it an alien culture that actually does more harm than good and connects us to decadent influences. It’s probably an unstoppable tide.

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Ian says:
24 March 2017

I couldn’t agree more. In fact, I’ll have Alfred draft a letter for me to sign, as soon as Mrs Homeworthy has walked the dogs.

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Elizabeth says:
24 March 2017

Sometimes paying a bit more can be worth it for customer service and perhaps it’s not that you are paying more in one place, but paying far too low a price somewhere else.

For example. I own a baby shop, I buy Nursery Furniture in as and when required – I’m in direct contact with the supplier and I check each and every order has been delivered to my customer and that all has gone well.

One customer noticed a unit I had in my shop was £5 cheaper online. I make barely anything on Nursery Furniture and as I have shop rent, business rate and all bills to pay (which online shops do not have). I don’t price match furniture as although I have seen supermarkets selling the same furniture as available in my shop occasionally for far more than RRP, I have also seen them sell Nursery furniture for less than cost price sometimes.

This customer who bought the unit online had a broken drawer and after weeks and weeks, she could not get a replacement or refund for this drawer via her online shop.

When she needed to buy a Cot bed, she came back into my shop, explained this had happened and bought the Cot bed from me – everything went smoothly, she got her Cot bed as requested, no problems and if there had been any, I would have contacted the suppliers in person!

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VynorHill says:
24 March 2017

Yours is the kind of shop I’d like to visit. I bought my sewing machine from one such and an antique clock from another. That extra mile is important and worth paying for. I have happy memories of shopping with my grandfather. We had a wicker basket and wandered down the high street. Every shop greeted him by name and had time for a chat. Since this was an every day event, the basket coped with its contents. Somehow a mouse and keyboard doesn’t have the same cachet.

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Jenny Honey says:
25 March 2017

I’ve had a holiday in Berlin with my friend twice in the last two years, both in March, both times flying out of Manchester. Both times we booked our flights on the Easyjet website, looking at the same page, same flights at the same time. Both times the flight costs she was seeing on her screen in Manchester were about £5 cheaper than the flight costs I was seeing on my screen in Glasgow. This doesn’t make any sense. Of course, both times she booked the tickets on behalf of both of us!

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Gavin Hunter says:
28 March 2017

Twice recently I went into an M&S Simply Food/BP petrol station to buy a snack. Once, no petrol, just the meal deal. Twice I was charged the full price of the items and after a great deal of flustered calculation they managed to sell them for the advertised price. One questions how many hurried and harassed drivers actually stop to check. The pricing policy is vague and products which are included in the meal deal are often difficult to identify. Small print features largely! Again, hurried people thinking they’re getting a deal will either go and change the “wrong” item or just say it doesn’t matter and pay. The meal deal pricing needs to be clearer as the consumer is the one losing out. Certainly not M&S Simply Food/BP.

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