Today's Revenue Management thought:-

Umbrellas and randomised pricing

When it is raining shopkeepers make sure that they have a variety of small umbrellas for sale. Anybody caught out without an umbrella will be inclined to stop and buy one. Inspection reveals some interesting prices for although four or five umbrella models may be available, there can be ten or eleven prices!

This is because people in a hurry may simply grab the first umbrella they see in the category they want rather than taking the time to look through what else is available. They are clearly willing to pay for convenience – a perfect example of second-degree price discrimination!

The shopkeepers seem to practice their umbrella pricing by increasing prices of some units of each model while leaving the prices of others as normal. The higher priced units are positioned at eye level and the rain encourages people to hurry. When it is not raining, customers can be seen choosing carefully.

Randomised pricing works well for umbrellas because people in a hurry want to avoid the rain. Before the rain starts people can be seen spending time looking through the umbrellas to find the lower priced ones.

One group of customers is incurring search costs and the other group is sometimes paying a higher price in return for lower search costs.

Following the above line of thought, we can and should assume that hotel guests will voluntarily pay more to save some time.

Have a profitable week.

✌🏼