Price Discrimination

In pricing strategies, the first-degree price discrimination is referred to as “pricing according to individuals,” while the second-degree price discrimination is “quantity-based pricing.” However, let’s delve into a more advanced pricing strategy today: third-degree price discrimination – “category-based pricing.”

For instance, at a movie theater, the cost of popcorn is $5 per bucket, yet it’s sold at $30. Regarding this pricing, A thinks it’s outright robbery, willing to pay a maximum of $10; B finds it a bit expensive but acceptable at $20; while C doesn’t mind $30, willing even to pay $50. So, how can we make these three individuals pay their maximum perceived prices – $10 for A, $20 for B, and $30 for C?

This is where the concept of third-degree price discrimination, which involves “category-based pricing,” comes in. But what exactly constitutes these “categories” for pricing? In the study of third-degree price discrimination, there is only one “category”: people who are wealthy and willing to spend more money. The idea is to make this particular group pay more. However, how do you identify these “wealthy and willing to spend more money” individuals?

Researchers of third-degree price discrimination pondered intensely. Although wealthy individuals don’t have “I’m wealthy” written on their foreheads, they certainly possess distinct characteristics. Once these traits are identified, it becomes possible to recognize the wealthy and then set prices based on this “category.”

After diligent research, they finally pinpointed the conspicuous traits of “wealthy individuals,” and this marked the formal commencement of business discrimination toward the wealthy.

Firstly, wealthy individuals prefer spending money rather than time.

For example, if you’re a gaming company, regular players can acquire the “Sword of Legend” through upgrades, treasure hunts, or completing tasks. But what if you don’t want to spend time? Well, you can simply purchase it for $10,000.

Or, if you’re an airport or train station, you could introduce VIP services offering a green channel for boarding and direct transportation upon arrival, saving 10 minutes but at triple the cost.

Alternatively, for a cinema, an activity might involve sharing the movie’s promotion on Facebook and gathering 100 likes to buy popcorn, usually priced at $30, for $10. Feel like it’s too much trouble? That’s precisely the point. It indicates you’re a wealthy individual. This activity aims to filter out those who value their time more, allowing only someone like “Zhang San,” who doesn’t value time highly, to purchase popcorn for $10.

This discriminates against wealthy individuals by leveraging the characteristic of “preferring to spend money rather than time,” making them pay while allowing those with time to spend it.

Secondly, wealthy individuals desire immediate access and won’t wait.

For instance, if you’re a video streaming platform, offering “simultaneous release” for paid members – non-members need to wait a week for the latest episode of a series. But what if you want to watch it immediately? Well, you’ll have to pay for it.

Or, if you’re a visa processing center, you could offer an “expedited service.” Regular visas take a month. But if you’re in a rush? Pay for the “expedited service,” and it’ll be done in a week. Still too slow? Well, you’re really in a hurry, aren’t you? Purchase the “urgent service,” and it’ll be done in three days.

Or, consider a cinema providing a “Watch Movies Together” popcorn voucher, encouraging guys to watch movies with their girlfriends. Use this voucher next time, and you’ll get a $10 discount on popcorn, but it can’t be used today. If you want it today? That’s still $30. This activity is designed to exclude wealthy individuals and let “Li Si” purchase popcorn for $20.

This discriminates against wealthy individuals by leveraging the characteristic of “wanting immediate access and not willing to wait.”

Furthermore, wealthy individuals cannot tolerate low quality.

Thus, if you’re a publishing house, you can release books in both “hardcover” and “paperback.” The paperback should maintain decent quality but be enough to deter wealthy individuals.

Or, if you’re a software company, you can label a meticulously crafted software as the “Ultimate Edition,” then intentionally strip down some features to create the “Professional Edition,” and further reduce features to produce the “Home Edition.” Would wealthy individuals purchase this “diminished” “Home Edition”? They wouldn’t.

This discriminates against wealthy individuals by leveraging the characteristic of “cannot tolerate low quality.”

Lastly, wealthy individuals wish to control everything.

Some travel agencies sell “last-minute cruise tickets.” Meaning, if cabins are full, you wait for the next one; if there’s space, you can join. But what if someone says, “How can that work? What about my subsequent plans?” I must purchase tickets for a confirmed itinerary.

Airlines selling discounted tickets often have “no changes allowed” clauses. No changes allowed? My plans change frequently; how can I not change? Then please buy a full-price ticket.

This discriminates against wealthy individuals by leveraging the characteristic of “wanting to control everything.”

You might think, “Wow, wealthy individuals have it tough, facing discrimination everywhere.” Indeed, while you might think the business world discriminates against the poor, it actually leans more towards discriminating against the wealthy.

Some might think being wealthy isn’t easy either; you face discrimination. Maybe I’ll spend more time to save money. But that’s because your time isn’t considered valuable yet. When the time comes that your time is so valuable that you’d spend money to save it, not even willing to spend an extra minute, your life becomes incredibly “valuable.”