Sunday, April 24, 2016

Discriminatory pricing for discriminatory services

I remember initially being surprised that security lines at airlines would be shorter for higher fare travelers, but Americans are getting used to class distinctions. The NY Times has this story, focused on cruise ships: In an Age of Privilege, Not Everyone Is in the Same Boat: "Companies are becoming adept at identifying wealthy customers and marketing to them, creating a money-based caste system."

"In theory, according to Steve Tadelis, a professor of economics at the Haas School of Business at Berkeley, “when an industry is able to create a richer line of products for people looking to spend their money, that makes everybody happier. But getting it right in reality is very, very hard.”

"As companies separate their clientele, a debate has developed over just how obvious the distinctions should be. Some experts, like David Clarke, who works with leisure industry giants as a principal at PricewaterhouseCoopers, say that it is best to be open about what amounts to a money-based caste system.

“It’s about transparency,” he said. “What customers hate is when you’re trying to hide stuff and are not being honest with them.”

"Many companies, though, have discovered that offering ordinary customers just a whiff of the rarefied air can actually enhance the bottom line, even if it stirs a certain amount of envy and resentment.
"Even though this kind of pampering might be good for business, and delight those on the right side of the velvet rope, the gap between the privileged and the rest may ultimately leave everyone feeling uneasy, said Barry J. Nalebuff, a professor of management at Yale.

“If I’m in the back of the plane, I want to hiss at the people in first class,” said Mr. Nalebuff, who has advised many Fortune 100 companies. “If I’m up front, I cringe as people walk by.”

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