Can You Pay More?

by breeve 30. January 2012 14:40

Walk into any nice golf course in Las Vegas and upon paying for your round you will be asked one question: whether you are a local resident. What seems like a simple question has great impact on how much you pay.

Most golf courses know that local golfers are a bunch of price sensitive whiners. Increase the price of a golf round too much and they will disappear. Decrease it and they will play more. You couldn’t pick a better demonstration of how prices influence demand. Although most golf courses have only local customers, Las Vegas courses have an additional visitor: the tourist.

While the locals are price sensitive the tourists are not. They have come long distances to play golf and asking them to pay more will not derail their objective. If the locals are a bunch of price sensitive whiners the golfing tourist is a price insensitive high roller.

Golf courses have realized this long ago. Why charge only one price? Unlike most things in life, they can have the best of both worlds by charging locals one price and tourists a much higher price. So different are the prices that tourists commonly pay hundreds of dollars more. Still, they enjoy their experience while golf courses enjoy the higher profits.

Golf courses may price discriminate against tourists but Amazon—in their early days—tried charging different prices for the same book. Through the use of internet browser cookies, they tracked how much you were willing to spend for a book. As good as the profits where for Amazon‘s bottom line, it turns out that while customers tolerate group pricing like senior or student discounts they don’t like hearing their neighbor paid less for the exact same book ordered on the same day. Amazon has since reversed course and charges the same amount for the same book—at least we think they do.

Coffee shops identify those that can afford to pay more not by charging different prices for the same cup of coffee but by charging different prices for nearly identical cups of coffee. It cost next to nothing to add whip cream or chocolate and those that are less price sensitive usually opt for the more luxurious cups. Coffee shops make more money by having a fuller menu than by having just one type of coffee with one price.

Like the coffee business, the tech business offers different tiers of products. IBM’s LasterWriter E—a low end laser printer—had the exact parts as the high end LaserWriter model except it had a special chip to slow it down intentionally. While nothing drives engineers more crazy than watering down an existing product, having two products prevents those that can afford to spend more from buying the cheaper version. By having two products, the rich will always buy the more expensive fully featured version. Short of asking their net worth, nothing is more effective at smoking out the rich.

Printers are just the beginning. Intel designs different speeds of processors from the same chip design. Microsoft offers its operating systems in home and professional versions. Much to their delight, most businesses buy the more expensive professional version.

From the food business to the tech business, the game is getting those that can afford to pay more to do so. Next time you see different priced items ask yourself, will I pay more? The businesses certainly are.

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About Me

I am a Principal Engineer with 13 years experience developing and releasing software products. I started developing in C/C++ then moved into .NET and C# and have tech lead multiple projects. I have developed products in Windows Forms, ASP.NET/MVC, Silverlight, and WPF. I currently reside in Austin, Texas.

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Pickaxe - An easy to use web page scraper. If you know a little SQL and how basic CSS selectors work, no web scraping product will be easier to use.

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Created ASP.NET MVC forum originally targeting home owner associations but now in use by an investor group.

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A language for querying PGATour golf strokes.

http://pga.brockreeve.com/

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http://cargawk.com/

Simple front end tic tac toe

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