Sunday, 13 June 2010

Differential pricing keeps overall prices lower - so smile as you stand in the theme park queue!


The use of differential pricing by businesses is not a new practice – from the inception of travel there were different classes with the greatest luxury rationed through pricing and we experience the same with concerts, sports events and even the purchase of utilities. Today, ticketing systems for air travel, railways and much else allow from greater flexibility – it is far easier to capture the efficiencies of advanced sales, for example, or to charge for additional or extra services.

With pricing differential comes, as sure as night follows day, the outcry. Complaints about the terrible injustice of it all. And nothing is more terrible, of course, than me paying extra so as to jump the queue. Especially among the professionally indignant like Netmums fussbucket, Siobhan Freeguard:

“I find it amazing that parents put up with it. It won’t be long before there’s a backlash.”

Siobhan is talking about Alton Towers and the terrible fact that if I fork out loads of cash, I can jump the queues on the rides. Welcome to differential pricing and note, Siobhan, that these are businesses and if the pricing system doesn’t work (i.e. have a positive contribution to overall revenues) then the business will change it or close.

But I suspect there’s still a bunch of folk out there who think the price should be the same for everyone regardless of their degree of organisation (e.g. buying tickets in advance and seeking deals linked to less busy days) or willingness to buy privileges. These are the same people who want a single rail ticket price for everyone despite the fact that this would increase the cost of travel for most intercity travellers.

What these silly netmums and other complainers don’t realise is that differential pricing provides a benefit to all users – those buying privilege are, in effect, subsidising those who are not buying such privileges. Because some people are willing to fork out extra money to jump the queue, your ticket price for the same experience (slightly delayed) is lower.

As consumers we benefit from differential pricing – from greater choice, from more sustainable businesses and from the greater yield management that flexible pricing systems provide. The impact of imposed ‘fairness’ – whether on travel, theme parks or utilities – will be either longer queues or higher prices (and maybe both).


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