La Petite Syrah in Nice, France charges different prices for the same cup of coffee. It all depends on how polite you are.
- You will pay €1.40 ($1.93 USD) if you say, “Hello, some coffee please (bonjour, un café, s’il vous plaît).
- The price is €4.25 ($5.85 USD) for “a coffee, please” (un café, s’il vous plaît).
- But try just asking for un café and it will cost you €7 ($9.63).
While the café manager told a French newspaper that he has not yet charged his higher prices, a Los Angeles restaurant has offered a 5% discount for surrendering cell phones at the door.
Different prices for different customers takes us to what economists call price discrimination. Not necessarily a negative term, price discrimination just means that the business is charging different prices for the same good or service because it has some price setting monopoly power. Airlines do not ask if you are a business traveler who is happy to pay a higher price. Instead, they find out by giving a lower fare only to fliers who remain through Saturday night. Similarly, movie theaters hope to encourage the dollar poor/time rich elderly to go to the movies by charging them less but ask the rest of us to purchase a more expensive ticket.
The trick is to use 2 or more prices. The higher price attracts customers willing to pay more. The lower one grabs others who refuse to pay extra. We could even say that couponing is a form of price discrimination. People willing to exert the time and energy to locate and use a coupon get a lower price. Those who shop without coupons pay more. Giving everyone coupons would lower revenue while giving none would also. The key is to find that sweet spot through smart price discrimination.
Sources and Resources: H/T to marginal revolution.com for alerting me to the Nice café story and the source of my picture. In addition, a French newspaper had more facts while the Huffington Post told about the LA restaurant with a cell phone discount.
The title of this post was changed after it appeared.