Monday, July 26, 2010

The Value Of Price Discrimination


There are times when offering a price differential can be of great use as a marketing tool for businesses - when it is done legally and ethically, of course.

This morning I was thinking of asking my in-laws to do something for me on Wednesday afternoon. Then it hit me. They will probably decline because Wednesday is 'Movie Day' for them! Why is Wednesday 'Movie Day'? Well, because the movie theater offers a special discount to senior citizens for Wednesday matinees when they use their "Golden Buckeye" card - a state-issued card for people over 60 years of age.

My in-laws have been retired for a few years now, and pretty much every Wednesday they go to the movies at a discount. Sometimes they even see two in a row! And why? Because it gives them something to do that is enjoyable for both of them, and they are getting a significant reduction from the regular price of a ticket.

Clearly, this discount is a great benefit to older people. But, is this really beneficial to the theater? If my in-laws like movies so much, wouldn't they go anyway at full price? Isn't this lower pricing taking away revenue the theater could get from selling seats to other age groups at full price? The answer to the first question is a definite YES. The answer to the last two is a firm NO.

Now my father-in-law enjoys movies a lot. But, I can say with confidence that he would almost never go to the theater to see a movie if he had to pay full price. The same is true with other businesses that accept the Golden Buckeye card, such as restaurants. He will go to these restaurants, and go more often because there is a discount involved.

The reason this is such a good marketing tool is because the program brings in customers that the business would not normally attract, and often during non-peak hours that struggle to bring in customers at all. In the example of movie theaters, Wednesday afternoons are a time that few people patronize. Employees are still working, popcorn is still made, movies are still showing, and electricity is on even if moviegoers are not there. So, by offering a discount to seniors during this off-peak time, the theater attracts patrons who are often retired (meaning they have time and money to spend in the theater during the day) to be their customers when they normally would have few.

A discounted ticket plus refreshments equals increased revenue for the theater, and happy seniors who enjoyed their afternoon with a price cut. Increase profits by offering a lower price. What a great idea!!