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> 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:
by 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 agoCharging $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.