Pricing is a strange and complex beast. We just got an offer from Wall Street Journal to subscribe for $99.00 — 82.2% off the regular street price of $556.50. Wow! Except we have to wonder, (a) does anyone really pay that inflated $556 price, and (b) if no one does, then doesn’t this entire deal smell like BS?
When marketers charge different amounts for the same thing, it’s called price discrimination. That sounds bad, but it’s really a technical term for a common pricing approach. If you think about it, it makes sense. If you buy an airline ticket “on sale,” someone else paid more for the same type of seat on the same plane. Grocery store coupons are another form of price discrimination — people who aren’t penny pinchers pay $0.99 for a can of beans, while the thrifty who bring in a coupon spend $0.79 for the same can. The supermarket just got two people to pay different amounts.
Price discrimination is common in service industries (such as subscriptions where resale is unlikely) or in markets were customers or the goods themselves have greatly differing value (think luxury hotels, concert seats, airline accommodations). It can even be a form of branding. A Starbucks latte is just burnt coffee and milk.
There are three ways marketers make price discrimination work.
1. First-degree price discrimination, in which each customer pays a different price. Airline tickets come close to this model.
2. Second-degree, in which price varies by quantity sold. Think bulk toilet paper at Costco.
3. Third-degree, where customer segments drive differences.
Ah, that brings us back to The Wall Street Journal. We used to subscribe, for about 3 years, then quit. WSJ wants us back. So they’ve sweetened the offer, like a bad husband courting his spurned spouse with flowers, with a $457 “discount.” Great! But next year, what happens when we enter the Year 2 Customer Model … will prices creep up? Could be.
We shopped around for a year WSJ subscription and found the same $99 offer on the web site. But if you call 1-800-JOURNAL, the friendly sales rep will sell you the same 52 weeks for $249. We’re not sure what re-subscription rates cost. $556.50 perhaps?
The point for marketers is that price strategy is part of the “value perception” of your product. By setting reference prices, and then discounting, you make the deal seem better. By adjusting pricing to different segments, you can pull new accounts in while increasing overall profitability.
Just be sure it’s fair and legal, or you’ll end up in the pages of The Wall Street Journal.