tailfins
11-21-2021, 10:39 AM
How Companies Raise Prices Without Raising Prices
Companies hope that by making price increases hard to see, they can escape notice and avoid a customer backlash
https://www.wsj.com/articles/how-companies-raise-prices-without-raising-prices-11637490602
1. Unbundling services, lowering product quality and devaluing reward programs
My comment: Have you eaten at Outback Steakhouse lately and noticed lots more fat/gristle?
2. Shrinkflation and the quantity surcharge
Most people are familiar with shrinkflation—the common practice in the grocery industry of reducing weight, quantity or volume of a package while maintaining price. It works effectively as a covert price increase, because consumers are far more likely to notice price increases than equivalent weight or quantity decreases.
Less well known is a little psychological trick companies use with larger packages. Many shoppers assume that such packages with labels like “Party Size” or “Jumbo” will be cheaper on a per-unit basis. This is often not the case. Brands routinely exploit this common consumer belief by marking up larger packages more, and earning a greater margin on them. Researchers call this a “quantity surcharge.”
3. Disappearing deals and coupons
4. The sunk costs of memberships
Consider the following comparison: Which one is cheaper, a 64-ounce container of mayonnaise at a warehouse club that costs $7.99, or a 48-ounce bottle of the same brand at a supermarket for $5.94?
Most people will guess the warehouse club because of its low-price image. If you do the math, the price per ounce is roughly the same. But if you consider that the warehouse club requires a separate mandatory membership fee, the customer is actually paying more per ounce at the warehouse club.
Still, even though they pay it, most warehouse customers almost always ignore the initial fee, even if it’s recurring. They treat it as a sunk cost and fail to account for it in calculating the actual price they are paying for an item.
5. From good to better and from better to best
Another way to raise prices covertly is to introduce new, higher-quality versions at higher prices. This is called “good-better-best” pricing. Consumers like this approach because it gives them more choices. But its side effect is a stealthy price increase.
Many companies have used this method to benefit from higher consumer demand and earn higher prices during the pandemic. For example, Peloton lowered the price of its most popular basic spin bike by $350, or 16%, from $2,245 to $1,895. At the same time, it introduced a more expensive and profitable new bike for $2,495.
Companies hope that by making price increases hard to see, they can escape notice and avoid a customer backlash
https://www.wsj.com/articles/how-companies-raise-prices-without-raising-prices-11637490602
1. Unbundling services, lowering product quality and devaluing reward programs
My comment: Have you eaten at Outback Steakhouse lately and noticed lots more fat/gristle?
2. Shrinkflation and the quantity surcharge
Most people are familiar with shrinkflation—the common practice in the grocery industry of reducing weight, quantity or volume of a package while maintaining price. It works effectively as a covert price increase, because consumers are far more likely to notice price increases than equivalent weight or quantity decreases.
Less well known is a little psychological trick companies use with larger packages. Many shoppers assume that such packages with labels like “Party Size” or “Jumbo” will be cheaper on a per-unit basis. This is often not the case. Brands routinely exploit this common consumer belief by marking up larger packages more, and earning a greater margin on them. Researchers call this a “quantity surcharge.”
3. Disappearing deals and coupons
4. The sunk costs of memberships
Consider the following comparison: Which one is cheaper, a 64-ounce container of mayonnaise at a warehouse club that costs $7.99, or a 48-ounce bottle of the same brand at a supermarket for $5.94?
Most people will guess the warehouse club because of its low-price image. If you do the math, the price per ounce is roughly the same. But if you consider that the warehouse club requires a separate mandatory membership fee, the customer is actually paying more per ounce at the warehouse club.
Still, even though they pay it, most warehouse customers almost always ignore the initial fee, even if it’s recurring. They treat it as a sunk cost and fail to account for it in calculating the actual price they are paying for an item.
5. From good to better and from better to best
Another way to raise prices covertly is to introduce new, higher-quality versions at higher prices. This is called “good-better-best” pricing. Consumers like this approach because it gives them more choices. But its side effect is a stealthy price increase.
Many companies have used this method to benefit from higher consumer demand and earn higher prices during the pandemic. For example, Peloton lowered the price of its most popular basic spin bike by $350, or 16%, from $2,245 to $1,895. At the same time, it introduced a more expensive and profitable new bike for $2,495.