Going "Green" to Increase Profits

One of the hottest topics among business people is how to increase profits by being environmentally friendly. There are many ways to achieve this. At hotels, for instance, by not washing towels during a guest’s stay unless the guest asks, the hotel saves both money and the environment. Green innovations can be featured in advertising campaigns to attract customers. Another potential benefit of “going green” is that it makes environmentally minded employees happy, increasing their loyalty to the firm.

A Berlin brothel has hit on another way to use environmental arguments to its benefit: price discrimination. Mary MacPherson Lane writes in an AP article:

The bordellos in the capital of Germany, where prostitution is legal, have seen business suffer with the global financial crisis. Patrons have become more frugal and there are fewer potential customers coming to the city for business trips and conferences.

But Maison d’Envie has seen its business begin to return since it began offering the euro 5 ($7.50) discount in July, Goetz said.

To qualify, customers must show the receptionist either a bicycle padlock key or proof they used public transit to get to the neighborhood. That knocks the price for 45 minutes in a room, for example, to euro 65 from euro 70.

Although the brothel says the reason for the price discount is that it wants to be environmentally conscious, it sure looks to me like the brothel is dressing up some good old-fashioned price discrimination arguments in a green disguise.

Customers who come by bus or bicycle are likely to have lower incomes and be more price sensitive than those who arrive by car. If that is the case, the brothel would like to charge such customers lower prices than the richer ones. The difficulty is that, without a justifiable rationale, the rich customers would be angry if the brothel tried to charge them more (and indeed, how in general, would the brothel know who is rich?). The environmental argument gives the brothel cover for doing what it always wanted to do anyway.

(Hat tip: Daniel Lippman)


Eric

"Customers who come by bus or bicycle are likely to have lower incomes and be more price sensitive than those who arrive by car. "

Are you certain of that fact? I would say for sure in the United States, but would that fact hold true in Europe ....

Brendan

I'm always frustrated by hotels parading a cost saving to them as environmental action from their guests. I've worked at high end hotels - their environmental performance was beyond pathetic. And then they flick the green switch to ask the guests not to wash towels, saving their staff time. When every hotel has the same greenwashed message, it's not an innovation.

Now the larger subject is a good one though. Surely we cna think of better examples than that.
B

Ray

I would say some wealthier people would certainly take the bus or bicycle, those that do use a car are definitely wealthy, and poorer people would definitely not be able use a car.

Andrew

The question is now how much public transportation costs? Because you can easily get a transfer pass (or whatever to show you "rode public transit"), making the entire exchange cheaper, even if you drove. Or just buy/bring a padlock to act like you rode a bike. This is just a hiding of a price drop.

Phil

Eric,

It would be even more true in Europe because the cost of owning and maintaining a car is so much higher there.

There could certainly be exceptions, but I would be very surprised to see data that contradicts Levitt's hypothesis about the income.

However, I also wouldn't be surprised to learn that the brothel wasn't thinking of price discrimination by income. They were probably just trying to attract more customers through "green" marketing.

Alex K

If you had a high income, would you bother to bear the cost of making sure you used a bike or public transportation and then provide proof just to save 5 euros on an indulgence? It's a very clever idea, and you can't argue that there's at least a moderate correlation between use of a car and income levels.

Mike

The argument that public transportation users are mainly poor in Europe is not correct. It is precisly this kind of thinking that discourages public transportation here in the United States.

Bobby G

Good idea by the brother, and a very nice analysis. Also this article's headline makes me think of that IBM commercial with that ANNOYING song and those cartoon animals. I was ready to email them saying if they didn't stop running those commercials I would vow never to buy anything linked to IBM again, and tell all my friends to do the same.

Anyhow, carry on :)

Kay Mordeno

If businesses go green to increase profits, given that such a price discrimination occurs, wouldn't it still have an overall net benefit to the society because they resort to more environment-friendly practices?

Or perhaps there's more to it than price discrimination alone?

kit

Somehow, even though you write for the NY Times, you just offhandedly wrote off all cyclists and transit users as "lower income."

Do you have any data to substantiate that stereotype-laden claim, or are you just celebrating in your bias?

Kerelisse

Man, excellent article, but couldn't you find another example than a brothel? Lol

Allen

Whoa, I think people are reading too much into Levitt's word choice. He says that people who bike or use public transit are ***more likely to be lower income*** than people who drive. In other words, the expected income of a transit user in Europe is lower than the expected income of a car owner in Europe (where vehicle ownership costs are usually higher than in the United States). This does mean or infer that public transit riders and bicycle riders are poor!

NM

I suspect the rationale might have had as much, if not more, to do with the free advertising it promised to generate through... stories such as the above:)

NM

PS: as a continental European let me state that the hyp. that public-transport users and cyclists are disproportionately likely to be low-income doesn't gel with my personal observations. In particular cyclists are unlikely to be disproportionately poor. Many people who have a car and could afford to drive all the time are likely to actively choose to cycle because

1) it's healthier (and not particularly dangerous, given that most German cities have marked cycle lanes on the roads)

2) being stuck in traffic is hell (think inner-city rush hour).

3) finding parking spots in the city is often tiresome

4) it's cool.

--> getting around by bike is much more practical and pleasant much of the time.

Indeed, given that the health and image-appeal of cycling are likely to be felt more strongly in the middle class, a plausible hyp. would in fact be that cyclists were likely to be, on average, Better off financially.

Read more...

David

What about the shared cost to everyone for the water and energy that goes into extravagant and unnecessary use and washing of towels. Isn't it a good thing when the hotel takes efficiencies into consideration regardless of motive. And won't it all come out in the competitive wash eventually (as part of the competition to lower hotel costs and rates across the industry).

Maybe the bordello has genuine climate concerns (floods, famines, etc.) along with being tired of flabby car driving patrons. What is wrong with creating incentives for climate and physical health simultaneously. Not to mention of course, that the wealthy always get the best quality, no matter what the product or service.

This post appears to be one more example of (Super) Freakonomics taking a narrow view to promote an unscientific shortsighted specious conclusion. You guys defeat yourselves before you even start.

TCO

Well in a free competition situation, the price discrimination could not stand. BREAK THE WHOREHOUSE CARTEL! ;-)

justin sarma

Who cares? You make it sound like price discrimination is a bad thing, but it's just a way of charging something closer to what the buyer is willing to pay, just like with first class airline seats, or 'wait in line for hours for cheaper tickets'. Basic economics tells us we can assume that price discrimination will have the side-effect of causing some consumers to try to enter the lower price bracket by changing their behavior: For instance, biking to the brothel instead of driving. This leads to less carbon emissions. So it's win-win, right? The brothel makes more money, and less carbon is emitted.

Delia Lloyd

Hey, man. Green Prostitution. You've gotta love that. Perhaps they'll also get a tax break from the German govt?!? Here in London, the Transport agency actually subsidizes bike wear for those who cycle to work....I see some possibilities here...

Delia Lloyd
www.realdelia.com

John

@7, 10 & 14 -

Nowhere in the blog does Levitt use the word "poor", and the phrase "lower income" is obviously being used in reference to "rich" (as the rich are mentioned later in the paragraph).

I think it is safe to assume that people on gov't assistance, or homeless, are not the brothel's target audience. I also doubt that the German equivalent of food stamps is accepted at most brothels. While 70 euro is a significant amount of money to most middle class individuals, it would be an unreasonable amount for most "poor" to spend on a luxury "item". That being said; a five dollar discount may not be sufficient to change the behavior of many rich customers, but it might make enough of a difference to lower income (read: middle class) customers to encourage their patronage.

Laconophilia

My biggest complaint about the hotel scam is that you have to put the towels on the floor to get fresh ones. The problem is that you can never be certain when housekeeping will make up your room. When I'm in a hotel I generally do not follow the same schedule as when I'm at home and don't know if I will want to shower prior to them coming through. As a result I usually rehang the towel and don't get new ones, which aggrevates me (who likes using moist, cold towels?).