To Discriminate You Need to Separate

Price discrimination — charging different prices for the same product or service — requires preventing people who pay a high price for an item from being able to buy it at a low price.

This is done by separating the markets — linking the price to different times when the item is bought, such as day or night, weekday or weekend; or different ages of customers; or other ways.

Another market separation gimmick is underscored by a squib in the latest Consumer Reports. Dr. Leonard’s catalog sells the Barber Magic hair trimmer for $12.99, but in the same catalog offers the identical product, called the Trim-a-Pet, for $7.99.

INSERT DESCRIPTIONDr. Leonard’s

INSERT DESCRIPTIONDr. Leonard’s

Other than the names on the packages and a bit of different description, the products are identical; and even the styles of the packages are identical.

Putting advertisements for both packages in the same catalog is a poor way of creating market separation: If I had hair and needed to cut it, I would simply buy the Trim-a-Pet for my personal use and save the $5.

This attempt at market separation might work if done in stores — pet stores could sell the Trim-a-Pet at lower prices than drug or hair-care shops sell the Barber Magic — but without some kind of geographic separation, successful price discrimination can’t occur.


Freund Hein

Hello,

maybe you jusat hadn't had a close look. For me, the human version of the useless tool is stainless steel while the pet versaion is from coated ordinarty steel. Just to judge from the colour as a material inspection expert...

Better: order both items and compare via juxtaposition...

RUBBA

You see this on Amazon all the time. Certain things have a drop down price list for COLOR.

Marco

There is an ineradicable believe here in Germany (and probably elsewhere too), that every washing agent on the market comes from the *same huge factory*. It is said, that they simply put the same detergent in different packages. Then they add a brand typical scent and some color and sell it under different prices.

Truth is, that many leading manufacturers market half a dozen or more washing agent brands (sometimes ranging in price from 1.50 to 6 Euros for the same lot) and nobody can tell the difference between them...

Ray G

By the author's definition, my power company has put me in an involuntary situation of market separation.

I want to run my air-conditioning the most at the hottest part of the day, but the scoundrels are gouging me on price by charging more when I need it most.

Kris

This happens with lots of stuff, as we continue to point out.

Even drugs in the store tell us to compare to the name brand. After comparing, I still am less tempted to put "Walbuprofin" in my body when I want Advil.

It is the making of extra product to save on overall production costs, selling it for cheaper in a slightly different market because a given market is tapped out at a certain demand, and selling more overall.

So, this time it is dog generic and not another human generic version. Big deal.

This is basic business, no?

Niobe

The occasion also gouges the price. Getting your hair done or buying a bouquet are relatively expensive, but easily $100 more so when you mention it's for your wedding.

calvar

One good example of Price discrimination:
In the US I used to love one shampoo that is sold on any grocer store for $5 but considered there just one among the bunch.
What was my surprise to find that same shampoo brand is now sold across the Atlantic to our pharmacies for $20 (our pharmacies don't sell grocers). The pharmacists told me it is selling pretty good!!!
That brand in Europe can now only be found on Pharmacies. My guess? People think, "oh, rather than an everyday grocer, if it is in pharmacies it has to be good!"

Needless to say, a marketing mayor myself, every time I visit back the US, I smuggle a few bottles back ;-)

Jay Teo

I agree with most posters here. This separation is only "bad" now that it's been pointed out. If I hadn't read this blog post and came across these two products in a catalog, I can't be sure they are, in fact, identical.

The laser pointer example by Neil is funny. Another one is disposable contact lenses. They are sold for a lot less than non-disposable ones even though they are the exact same product.

Mike

reminds me of an experiment that the author & poet Robert Graves ran in the 1920s, detailed in "Goodbye to All That". After WWI he tried his hand at running a grocery story. He found that if he took a single bin of lettuce and divided it into two, and placed the two bins side by side with the left bin selling lettuce for many times the price of the right bin, the genteel would by the expensive lettuce, and the working class townfolk would buy the cheap lettuce. I think that he even mentioned that the rich would balk if they didn't have a "special" version groceries to buy, and had to buy the "common" variety.

Not everyone is as rational as an economist in price - in fact, I'd say very few people are - only economists!

DJH

I wonder if the assumption that these two products are identical, is premature. Looking the same in a catalog is not the same as being the same "for real." You'd have to order one of each, then open them up to find out.

Note: This is not to say that I think they can't be identical; it's very possible they are. It's just that possibility is not 100%.

Jacob Robertson

I take a different perspective on this.

While there is no "geographic separation", there is a very strong psychological separation here. Even though you've assured me that the products are identical, I can't be positive, and I'm simply not going to take that risk when the reward is only $5. If it was a difference between $500 for human trim, and $5 for pet trim, then I think I'd take the leap. But another part of price discrimination is finding the sweet spot.

Take the coffee example that I've heard quite a few times - if adding extra stuff to your coffee changed the price to $500 you would stick with the cheap coffee. But coffee houses have found the sweet spot at which customers are willing to overlook the inflated price.

rob

funny that the item numbers are different as well

Jeff

The same has been true for athlete's foot spray and jock itch spray. It's the exact same formulation but the latter commands a premium. In this case you respect your jewels more than your dogs!

Neil

It's poor seperation once pointed out. But I doubt the two products appear on the same page of the catalogue, and, if you were looking for something to trim your own hair, it's unlikely you would realise that the same product was available for a lower price in a different section.

It's no different than laser pointers. If you own cats, you know you can get one for a few bucks at the pet store. If you don't you'll probably buy one for an inflated price at the office supply store.

Randy

identical to the old horse shampoo craze, and even now, the prescription drugs for people vs. pets (which are, in most cases, identical and much cheaper).

Peter Brady

Edel, I work in IT for a school district & I see the behavior that you speak of all the time. I regularly see purchases of very expensive software & hardware when there are better, much less expensive options available. I've seen other school districts pay thousands & thousands of dollars for software that can be replaced with free software that is fully functionally equivalent & often times functionally superior. I have suggested to my peers that they are wasting money & they look at me like I'm an idiot. Fortunately, my boss thinks I'm a genius for all the money I've saved the district.

Patrick

"but without some kind of geographic separation, successful price discrimination can't occur."

I disagree. Amazon.com or many other online retailers offer thousands of products, grouped into subsections, and that have keywords that associate the searches to them. If I am in the market to find a hair cutting device or whatever, chances are I'm gonna thing "beauty/grooming/personal care" not "Pet supplies". So just by the arrangement of the indexing, and the predicted behavior of search habits, it should be possible to enforce some large degree of price discrimination unless you have a marketplace of MacGuyvers who excel at identifying additional uses for items.

Sara

Hmm, I think you're overestimating the a) intelligence of people and b) their willingness to buy a pet product for personal use. I don't think people are comparing that carefully...I think a lot of people would but the 'human' razor merely because it's labeled that way and they would worry there is something a little different about the 'pet' model. This would be ESPECIALLY true in the case of pet-vs.-salon stores! I just don't think people are comparing that carefully, even in a catalog. It's the same principle that you can sell name-brand stuff higher at the grocery store even if it's the EXACT same thing as the store brand sitting right beside it!

edel

Separation?? Not necessarily.
I guarantee you that if you put the same product next to each other one for $10 and the other for $14 but with a slight different package (even if only on silvery color) but with the same the trimmer, many people will select the more expensive one!

The reason? The believe that if it is 4$ more, it must have some king of benefit I am not aware of... He may be thinking; for only 4$ more a better choose this "better" one, just in case!!!" Besides, I am sure they may check their quality better before packaging it.

Ben

This is a very interesting topic to me. Does anyone know of studies that shed light on the Price Discrimination tactics used by some major online stores based on your search history or prior purchases?