4 ms·

Another way to think about it is offering sales, coupons, etc allow a retailer to offer a lower price floor for their goods, which expands the market for the re

by cj 7y ago

Another way to think about it is offering sales, coupons, etc allow a retailer to offer a lower price floor for their goods, which expands the market for the retailer. In other words... Person A: Price sensitive shopper who won't pay more than $2.00 for an Avocado under any circumstance. Person B: Convenience sensitive shopper who will pay up to $4 for an Avocado. The grocery store can price using one of two methods... 1) offering the same price to all shoppers, or 2) offering a higher price to most shoppers so that they can offer a lower price to price sensitive shoppers (via coupons, arbitrary sale dates, etc). With method #1, the grocery store can only sell Avocados to Person B because their prices are permanently higher than Person A is willing to pay. But with method #2, the grocery store can sell to both people because they've created a situation where a less price sensitive person subsidizes the cost of the product purchased by another more price sensitive person. The grocery store makes more money with method #2 in this example (at least hypothetically). I think the key is realizing that people value things differently. Some people don't look at prices when they shop. Some do. Some people only shop when they think they're saving money, some don't care. Some people value convenience + time more than price, some are the reverse. Obviously this example doesn't really apply to the first part of your comment about "Grief economy", just the 2nd part about coupons + pricing.

paulmd 7y ago
This concept is called 'price discrimination'. The idea is that it is most efficient for a store to charge every customer the exact amount they are willing to pay before they would decide not to buy.
- fjp 7y ago
  Complex and systematic price discrimination is probably most easily seen in the models used to price airline tickets, which involves interesting decisions like how many seats to initially reserve for business class, then how long you wait to open them up with non-business class pricing (upgrade your seat now for only $75!).
  - appleiigs 7y ago
    A simple one is eBay's "Buy It Now".
    - OJFord 7y ago
      I don't agree that's simple, nor (strictly) price discrimination. The most obvious added value is faster delivery: ship today instead of in X days/weeks when the auction ends. It also has weird value if you for some reason believe the BIN price is undervaluing the item, i.e. you can short-circuit the auction before anyone else realises.
  - kristianc 7y ago
    It’s often said that no two seats on an airline have exactly the same cost.
rebuilder 7y ago
Thank you, I hadn't seen coupons and sales in this light before. I've been thinking of them in terms of offering the same price to all customers, but this framing that takes convenience and time into account makes the whole system seem much more sensible.
- mncharity 7y ago
  >> Obviously this example doesn't really apply to the first part of your comment about "Grief economy", just the 2nd part about coupons + pricing. > makes the whole system seem much more sensible But doesn't it apply there too? Price discrimination has many forms, but a less pretty way of describing that one is the retailer creates non-monetary external costs and mixes them into offers, to discourage customers from simply switching to offers where less money changes hands. Imagine instead of a "spend time clipping coupons rather than reading with your kids" proof-of-work, the retailer creates an offer which requires someone to degrade themselves, to crawl on the floor and beg, to obtain a low price. This happily permits the retailer to extend affordable service to the desperate, without more profitable customers thinking it worth switching offers! So... yay? Issues include at least some created work functions not having inherent societal value (coupon clipping is perhaps more like bitcoin factorization than like ai-training captchas). And that created costs, and simply the customer categorization they are but one way to obtain, can have negative impacts on lives and society. It seems economics conversations are often more explicit about value creation and flow, but less transparent about the creation of "negative value", where it ends up, and its effects. There's more involved with an avocado coupon than merely a pair of price discriminated avocado sales.
maerF0x0 7y ago
> created a situation where a less price sensitive person subsidizes the cost of the product purchased by another more price sensitive person. Assuming 1:1 $2:$4 sales, say the cost is $1. They make $4 if they sell w/ coupon or not. The coupon chasing customer is a lower value customer because it actually takes some overhead to make coupons and to constantly convince them to be a customer. Whereas you can price at $3 and look like a champ compared to your $2 (secret coupon) /$4 (advertised price) competitors...
- cj 7y ago
  > Whereas you can price at $3 and look like a champ But who thinks you look like a champ? To Person A (the person who won't pay more than $2), they won't be a customer because you've outpriced them. To Person B (the shopper who doesn't care if they pay $3 vs. $4) you look exactly the same, because they probably put the Avocado in their cart without even checking the price.
- BorisTheBrave 7y ago
  Charging $3 dollars will mean you $2 of profit with 50% of your customers, and $0 with the rest (as they won't buy it). The coupon strategy will make you $3 with 50% and $1 with the rest. The cost of issuing the coupons themselves is small. Not only is the coupon strategy twice as profitable for you, more customers are walking out of your store paying a price they were happy with, so you've likely got higher consumer satisfaction. Hence why price discrimination is somewhat win-win.
superhuzza 7y ago
Price discrimination can be even more flexible than that - for example someone who sells things in a flea market. The ideal seller would price their goods at exactly the highest rate each buyer is prepared to pay. They try to do this by judging if the person looks well off, or is a tourist, willingness to haggle etc.

by cj 7y ago

paulmd 7y ago

This concept is called 'price discrimination'. The idea is that it is most efficient for a store to charge every customer the exact amount they are willing to pay before they would decide not to buy.

fjp 7y ago
Complex and systematic price discrimination is probably most easily seen in the models used to price airline tickets, which involves interesting decisions like how many seats to initially reserve for business class, then how long you wait to open them up with non-business class pricing (upgrade your seat now for only $75!).
- appleiigs 7y ago
  A simple one is eBay's "Buy It Now".
  - OJFord 7y ago
    I don't agree that's simple, nor (strictly) price discrimination. The most obvious added value is faster delivery: ship today instead of in X days/weeks when the auction ends. It also has weird value if you for some reason believe the BIN price is undervaluing the item, i.e. you can short-circuit the auction before anyone else realises.
- kristianc 7y ago
  It’s often said that no two seats on an airline have exactly the same cost.

rebuilder 7y ago

Thank you, I hadn't seen coupons and sales in this light before. I've been thinking of them in terms of offering the same price to all customers, but this framing that takes convenience and time into account makes the whole system seem much more sensible.

mncharity 7y ago
>> Obviously this example doesn't really apply to the first part of your comment about "Grief economy", just the 2nd part about coupons + pricing. > makes the whole system seem much more sensible But doesn't it apply there too? Price discrimination has many forms, but a less pretty way of describing that one is the retailer creates non-monetary external costs and mixes them into offers, to discourage customers from simply switching to offers where less money changes hands. Imagine instead of a "spend time clipping coupons rather than reading with your kids" proof-of-work, the retailer creates an offer which requires someone to degrade themselves, to crawl on the floor and beg, to obtain a low price. This happily permits the retailer to extend affordable service to the desperate, without more profitable customers thinking it worth switching offers! So... yay? Issues include at least some created work functions not having inherent societal value (coupon clipping is perhaps more like bitcoin factorization than like ai-training captchas). And that created costs, and simply the customer categorization they are but one way to obtain, can have negative impacts on lives and society. It seems economics conversations are often more explicit about value creation and flow, but less transparent about the creation of "negative value", where it ends up, and its effects. There's more involved with an avocado coupon than merely a pair of price discriminated avocado sales.

maerF0x0 7y ago

> created a situation where a less price sensitive person subsidizes the cost of the product purchased by another more price sensitive person. Assuming 1:1 $2:$4 sales, say the cost is $1. They make $4 if they sell w/ coupon or not. The coupon chasing customer is a lower value customer because it actually takes some overhead to make coupons and to constantly convince them to be a customer. Whereas you can price at $3 and look like a champ compared to your $2 (secret coupon) /$4 (advertised price) competitors...

cj 7y ago
> Whereas you can price at $3 and look like a champ But who thinks you look like a champ? To Person A (the person who won't pay more than $2), they won't be a customer because you've outpriced them. To Person B (the shopper who doesn't care if they pay $3 vs. $4) you look exactly the same, because they probably put the Avocado in their cart without even checking the price.
BorisTheBrave 7y ago
Charging $3 dollars will mean you $2 of profit with 50% of your customers, and $0 with the rest (as they won't buy it). The coupon strategy will make you $3 with 50% and $1 with the rest. The cost of issuing the coupons themselves is small. Not only is the coupon strategy twice as profitable for you, more customers are walking out of your store paying a price they were happy with, so you've likely got higher consumer satisfaction. Hence why price discrimination is somewhat win-win.

superhuzza 7y ago

Price discrimination can be even more flexible than that - for example someone who sells things in a flea market. The ideal seller would price their goods at exactly the highest rate each buyer is prepared to pay. They try to do this by judging if the person looks well off, or is a tourist, willingness to haggle etc.