Price Setting and Rips Offs

BrantRaven on 21/11/2018 - 22:14

Hello OzBarginers,

We had an interesting discussion at lunch today about how stores set prices, how they sell and what the general accepted idea of a "rip off" was. Was hoping I might be able to get some thoughts and wisdom from this crowd.

Imagine…(in all cases below please assume no scarcity of products)…

  1. I have a shop that sells widgets. As customers walk in to buy widgets I evaluate various metrics and determine for that customer what I think they are willing to pay for my widgets. The metrics I use might include, race, culture, wealth and physical appearance. This allows me to sell my widgets to some customers at $1 and to others $2…and in some cases $3 to other customers. Customers always have the right to say no and go elsewhere for their widgets!
  • Am I doing something wrong? illegal? …or am I simply identifying my target market on the basis of an individual customers.
  • Would the answer and thinking be the same if I was determining price of widgets randomly…maybe with the roll of a dice?
  • Would the answer be the same if I was selling something essential like milk or bread?
  • assuming I am doing nothing illegal and I successfully sell a widget to Person A for $1 and Person B for $2. Would Person B feel as though they have been ripped off? Would an outside person, not involved in any transaction declare that I have ripped Person B off…or would they declare that I have simply identified what Person B was willing to pay??
  1. Follow up question…is there some sort of legal mandate that states that I must sell a product at a reasonable price? In other words, could I choose to set up shop and sell bread at $1000 a loaf?

Eager to see your thoughts and discussion.

Brant

General Discussion

Comments

  • xuqi on 21/11/2018 - 23:02
    +5

    Free market economy mean you can sell whatever (legal) you want, at whatever price.

  • Blue Cat on 21/11/2018 - 23:11
    -2

    Look at this from a customer perspective:

    • If you bought an iPhone for $3000,
    • while I bought it for $1500,

    for the exact same iPhone, with same model and same storage, from the same store.
    Would you not be angry? Would you be happy that you paid more just because the store owner thought you were rich?

    Imagine seeing the reviews on your shop: "DO NOT BUY HERE you will pay more just because you are tall!"
    Automatically, all tall people will never ever go to your shop because who the hell wants to pay more?!?
    Would you go to store on your own will where you will pay more for the same product?

    Judging from your post, you sound like a really stingy person who likes to look after where they spend their every cent and save as much as possible. Would you even think about spending more when you can spend less? Probably not, so why do you think a customer would like to spend more?

    metrics I use might include, race, culture, wealth and physical appearance.

    Sounds like a one-way ticket on a no-speed-limit highway to breaking all possible Australia's Anti-Discrimination Laws!

    In other words, could I choose to set up shop and sell bread at $1000 a loaf?

    Nobody is stopping you and it is legally allowed… that is exactly how all businesses work, but good luck finding customers.
    If you can sell low-price products for a high price then you are a very skilled salesperson and I all I can say is keep going and keep making sales!

    • BrantRaven on 21/11/2018 - 23:48

      Firstly…thanks for the response.

      Would you not be angry? Would you be happy that you paid more just because the store owner thought you were rich?

      I would be super angry…of course. But thats not the point Im making. Im not asking you to look at it from my perspective, Im asking you to look at it with independent eyes…as someone with no skin in the game. If I dont know the price of an iPhone (using your example) and I accept the offer to buy at a high price simply because the person making the offer has determined that I will pay, Im not sure that is a rip off…regardless of how angry I might become.

      Imagine seeing the reviews on your shop: "DO NOT BUY HERE you will pay more just because you are tall!"
      Automatically, all tall people will never ever go to your shop because who the hell wants to pay more?!?
      Would you go to store on your own will where you will pay more for the same product?

      Again…I agree, the store would be out of business in a week especially in our connected world. But…still not the point. The question really is to determine if the store owner has done something intrinsically wrong. Has he not simply identified a market of people that will pay more?

      Judging from your post, you sound like a really stingy person who likes to look after where they spend their every cent and save as much as possible. Would you even think about spending more when you can spend less? Probably not, so why do you think a customer would like to spend more?

      Yes, yes, yes…but still not what I am asking. I dont think a customer would want to pay more. I cant think of a single time someone would not want to pay the lowest price…Im not suggesting anything like this should be implemented. This is nothing more than a thought experiment and I am simply saying from an outsiders perspective has not the business owner simply identified someone as willing to pay more.

      Sounds like a one-way ticket on a no-speed-limit highway to breaking all possible Australia's Anti-Discrimination Laws!

      Yep. This I would agree with.

      Nobody is stopping you and it is legally allowed… that is exactly how all businesses work, but good luck finding customers.
      If you can sell low-price products for a high price then you are a very skilled salesperson and I all I can say is keep going and keep making sales!

      Again…not something Im wanting to do or advocating. Its all theoretical

  • Diji1 on 21/11/2018 - 23:11

    I think you would love to read a book called Priceless: The Myth of Fair Value

    https://www.amazon.com/Priceless-Myth-Fair-Value-Advantage/d…

    Many of the largest businesses already do what you suggesting in 1 online.

    Customers are offered different prices depending on what information the shop has about them.

    And if you use a credit card, spending incentive program, loyalty program, social media, Google or apps that broadcast your location to whoever wants to buy it they have an enormous amount of information about you.

    • BrantRaven on 21/11/2018 - 23:49

      Some very good points. I actually didnt think on what you have listed.

      Thank you for the book recommendation. I will look it up.

  • zonra on 21/11/2018 - 23:15

    The metrics I use might include, race, culture, wealth and physical appearance.

    Would one be able to refuse to serve certain race/ethnicity by simply pricing the group out?
    E.g. a barber does a $30 haircut for everyone but for the one race/ethnicity they don’t like: “It’ll be 3k for the haircut, take it or leave it”.
    It’s an interesting idea that you’re bringing up though but I think it’s a potential can of worms.

    • BrantRaven on 21/11/2018 - 23:52

      Thanks for the reply.

      Would one be able to refuse to serve certain race/ethnicity by simply pricing the group out?

      Yes! I suppose they would. And I would guess this would be illegal and rightly classed as discrimination. This is why I also introduced the possibility of the price changing based solely on randomness.

      The idea here is not to marginalise people…but rather to understand the idea of a "rip of".

  • rompastompa on 21/11/2018 - 23:27
    +1

    I think the reason why price discrimination is less obvious nowadays, is that peoples voices are heard much further.

    If you want to stay in business, you want to keep both clients and non-clients as happy as can be. Discriminating one set of customers may lead to less sales and negative impact to your business.
    So yes, you can sell different prices to different people, everyone has done this for centuries. That's why Recommended Retail Price was created, and why you barter to a lower price.

    If you obviously discriminate against people (not just RRP - discount), then it will definitely effect future sales.

    • BrantRaven on 21/11/2018 - 23:58

      I think the reason why price discrimination is less obvious nowadays, is that peoples voices are heard much further.

      Yes. I agree. Because of the internet and sites like OzBargain we are all better educated. It wasnt really the question I was trying to answer though. I was really thinking if price discrimination in that way is a "rip off" or if it is savey business practice.

      So yes, you can sell different prices to different people, everyone has done this for centuries. That's why Recommended Retail Price was created, and why you barter to a lower price.

      Yep. Very good points.

      will definitely effect future sales.

      Agree and outside of theory, significant price differences for different markets cannot be maintained for extended periods without a backlash from one market at least.

  • John Kimble on 22/11/2018 - 08:54

    Good luck if you ever try and put this into practice.

    The only example I can think of that's close, is places that have a different pricing structure for locals vs tourists. Or casinos that only only tourists and not citizens.

  • elgrande on 22/11/2018 - 09:10
    +1

    This is worded very much like a uni assignment question.

  • SirFlibbled on 22/11/2018 - 15:48

    What you're decribing is price segmentation and it's pretty common. However, you might come into trouble if you're segmenting based on things which come under discrimination laws such as age, sex, race or sexual orientation.

    For example, if your metric said that gay men would be willing to pay more for the widget, you couldn't charge gay men more because it would be on the basis of their sexual orientation. Instead you'd need to find a way to do it. So maybe you'd design the packaging of the widget to be more attractive to gay men and charge 20% more than the widget would be in the standard packaging.

    This happens all the time, just compare mens and women's products in the hygiene and beauty aisle at your supermarket.

    Or you could have multiple online stores with different brands selling the same products all priced and marketed differently. This is also fairly common.

    • BrantRaven on 23/11/2018 - 09:18

      Best comment and examples.

      Thank you

Login or Join to leave a comment
Login Join