The politics of pricing: Why no joy



I read the following on LinkedIn, and it got me thinking about pricing theory: the way prices are set and the way that individuals respond. The whole process should be rational, right? Market demand and supply creating an economy that is reasonably fair. The following gentleman’s experience was contrary to the commonly taught theory.

You land in Houston around 10 p.m. After a long cab ride you check into a hotel that shall remain nameless. (Cough — Omni Houston Westside — cough.)

The desk clerk asks if you want a key to the mini bar. Nope. You’re an anti-mini bar kinda guy. You go to your room and toss your bag on the bed.

Still, you’re thirsty, plus you need to stay up for another couple of hours. Caffeine is in order.

So off you go in search of a vending machine.

“Aha!” you cry when you see a sign that says “Vending.” You poke your head in the doorway. There’s an ice machine on one wall. The other walls are empty, aside from several rectangles of brighter paint suspiciously shaped like drink machines. Looks like they were recently removed.

You try other floors. Nope.

You head down to the lobby. Restaurant and bar: closed. Gift shop: closed. (“Darn,” you think, “I really wanted to pay twice the normal price for a Houston Texans polo shirt.”)

By now you’re like Dr. Livingston seeking the sources of the Nile so you soldier on to the front desk. “I’m looking for a vending machine,” you say.

“I’m sorry,” the desk clerk responds brightly. “We don’t have vending machines and our restaurant is closed.”

“Oh,” you reply, your wit on full display.

“But you can use the mini bar in your room,” she offers helpfully.

So you sigh and take the mini bar key you initially turned down and make the solitary trek back to your room. There you unlock the secrets of the mini bar: assorted snacks, candy bars… and a glistening can of Diet Coke.

You take a quick look. No price list. “How much can it cost?” you think. “A couple bucks?”

Three days later your bank statement indicates a can of Diet Coke can actually cost $8.44.

Just for fun you call the hotel to inquire. “Don’t you think $8 is a little high for a 12-ounce soda,” you ask, “especially since I had no way of knowing it would cost that much?”

“Don’t you think you should have referred to the price list before you removed the soda from the mini bar?” a very pleasant voice replies.

“I would have,” you say. “But there was no price list.”

“Oh. Well, we do apologize for that.” Then the heretofore pleasant voice drops an octave. “But your room agreement clearly states that you assume financial responsibility for any and all items removed from the mini bar.”

Yes, you think, the room agreement probably did state that, but who reads room agreements? (Not you — you don’t even fully read every contract you sign. ) And it is true that you did not take further steps to determine the price.

Still, you wonder: At what point is a price not just high… but unconscionably high?

Let’s Talk Pricing Theory

I totally understand the concept of value pricing: a one-hour sitdown with Warren Buffett is worth a lot more than a session with the financial adviser down the street.

Even so, the price of a can of Diet Coke is, depending on the setting, fairly well established. So when value boundaries are in large part established and your price falls well outside those boundaries, are you responsible for making sure potential customers are aware?
The same is true for convenience markups, even though in this case the convenience was caused by an apparently intentionally imposed inconvenience. Are you responsible for ensuring potential customers are aware?

After all, convenience stores clearly display their prices for just that reason.

So forget my $8.44 can of Diet Coke for a second. I wasn’t upset. (It was kind of funny when you think about it.)

But it does raise a larger question. Even in a totally free market, what responsibility — if any — does a merchant bear for charging “fair” prices… and for ensuring customers know when prices fall well outside of expected norms?

Or is it always the customer’s responsibility to find out?

Episode 21 – Ragtag

From linked in

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