Some thoughts on pricing...
I recently returned from a family vacation, and while I tried not to do much "work", I did find that a hotel can provide an interesting ecosystem to observe some interesting pricing dynamics.
Pick a Price, Any Price
Despite my best efforts to kick the habit, I still find myself addicted to Diet Coke. And while I was able to lower my intake on vacation, I still found myself craving a Diet Coke or two during the day. What surprised me was the multitude of different places -- and different prices -- a single hotel sold the same product for. The mini-bar in the room sold a can of diet coke for $3.50 (ouch!). The soda machine down the hall sold it for $1.00. The gift shop sold it for $2.00. You can order it in one of their restaurants for $2.50 a glass (with free refills) or you can get it delivered poolside for $2.50 (with no refills). And you can order it via room-service for $2.50 plus a $2 delivery fee. Five different prices (ranging from $1 to $4.50) for the same product. The only difference is the method of delivery -- and the convenience each method offers the consumer.
And this got me thinking- can this model work online? Are there examples of online services which charge differentially for the exact same product? Let me know what you think...
The Anti-Penny Gap
I've written before on "The Penny Gap" -- where I discussed the challenge in converting a user from free to paying. In that post I concluded that the hardest part of an online business was "getting your users to pay you anything at all". Well, after this vacation I have to add an amendment to my theory.
My wife and I wanted to go out to dinner without the kids a few times on the trip, so we asked the concierge if they could recommend any baby sitters. The provided me with a list of three services - Capable Caregivers, Affordable Assistance, and Reliable Babysitting Agency. There was no description of the services. No references. No recommendations. No listing of "years in business". Just their names, prices and contact information.
So how am I to choose which one to select? Do I trust my kids lives with "Affordable Assistance" for $12.50 an hour? Or do I select the more expensive "Capable Caregivers?" Well, in the absence of any comparative information, I chose the Capable Caregivers. (As did, it appears, everyone else in the hotel -- my informal study of six other families who hired babysitters from the hotel concluded that everyone chose the most expensive option).
So I hereby amend the Penny Gap theory -- when a decision involves (1) safety/security/risk, (2) children, and/or (3) information assymetry, the highest price is often chosen over all over options. Let me know any other places where the "Anti-Penny Gap" applies.