Compare and contrast

Peter Martin January 16, 2013

Have you heard about the trick they use in fruit shops? If they want to make money from a large load of lettuce they divide it into two. They put half in a ”bargain bin” and charge something like $3 a kilo. They put the other half at the quality end of the store and charge $6. The well-heeled and uncertain pay $6. Those with less money and keener for value pay $3.
It earns the shop much more than if it had just charged $6 (if mightn’t have been able to shift all the lettuce) and much more than if it had just charged $3 (rich folks would have kept the extra $3 in their pockets). It also makes more than if the shop had just charged a single price somewhere in between, such as $4.50. Well-off customers would have still hung on the extra dollars and some needy customers would have still been priced out. The technique is called price discrimination. It may be retail’s most clever invention, and it’s everywhere.
Arnott’s once made a near-identical but cheaper brand of biscuits called Sunshine. It placed the packs at the bottom of racks where the well-heeled wouldn’t look but the bargain hunters would.

At home, there’s always the risk we’ll see through the ruse of someone selling the same product for two prices. So retailers will often roughen the product up, perhaps punching and bruising half the lettuces so they are genuinely worse than the other half.

Peter Martin April 19, 2006

In his book Retail Pricing Strategies and Market Power, Gordon Mills notes that in April 2000 a Sydney supermarket was selling special three-kilogram “budget bags” of apples for less than $3. The packaging made it hard to see what was inside. The apples were as good as those that were selling, loose, for up to $6 a kilogram. For the strategy to work, it was essential that the customers who were prepared to pay the high price could not find out.

Gordon Mills Pricing Strategies and Market Power pages 29 – 30.


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72 Responses to Compare and contrast

  1. Mr T

    Whoops! Obviously a greenie with all that recycling happening. ..

  2. hammygar

    This illustrates one of the evils of capitalism. The ruse amounts to theft. The practice should be prohibited by law, and practitioners banned from the market for a number of years. The consumer is as usual taken as a mug.

  3. Johno

    Martin has a long track record of deliberately misreporting other people’s words to push his own agenda. He works for Fairfax and before theat, their ABC.

    Why would you expect him to add Mills’ important qualifier to his misreport. It would ruin his narrative.

  4. Johno

    Hammy – theft is what government does. They are the ones who should be locked up.

    No one is forcing the consumer to buy the product. They freely choose to make the purchase. Perhaps you would prefer if you could only buy what Tony Abbott said you were allowed to. That would protect you from those wicked capitalists.

  5. Grey

    I knew a guy who worked in middle management in CUB and who swore on his grandmother’s grave some years ago that Carlton Crown lager and Fosters lager were exactly the same beer, just poured into different bottles.

  6. Token

    Ross Gittens would be proud of his protege.

  7. JC

    Kero boy

    Are you actually thinking straight or too focused on when you’re finally going to light the match.

    The people paying 6 bucks are actually supporting those paying 3 bucks you moron. You, being the one who would obviously buy the 3 buck pack, are getting a better deal than if the prices were equalized through weighting.

    I know the comment was trolling, but for FFS make it intelligent trolling. You really aren’t intellectually up to it, you moron.

  8. entropy

    I knew a guy who worked in middle management in CUB and who swore on his grandmother’s grave some years ago that Carlton Crown lager and Fosters lager were exactly the same beer, just poured into different bottles.

    hmm. I think a bit of extensive taste testing is in order.

  9. Tel

    The packaging made it hard to see what was inside. The apples were as good as those that were selling, loose, for up to $6 a kilogram.

    Point is that if you can’t see inside, you don’t know those apples are as good as the loose ones. What generally happens is customers pick through the loose bins and take the best ones to buy, then what’s left in the loose bin goes into the bags.

  10. Harold

    I read the original article and didn’t think it was that bad. Thought some of his examples did sound like they came from the rumour mill, Bondi residents paying less for example.

    He doesn’t claim the examples are the result of his own original research so what’s the problem? Too much broken record?

  11. Gab

    Peter martin is working off the premise that all consumers are dumb as a bucket of rocks. Not so – well except for those who pay three times the price for organic veg & fruit for no extra nutritional value.

  12. Grey

    I know the comment was trolling, but for FFS make it intelligent trolling.

    Trolling? That wasn’t trolling from Hammygar.

    This is trolling:

    So retailers will often roughen the product up, perhaps punching and bruising half the lettuces so they are genuinely worse than the other half.

    Sounds like James Ashby and Mal Brough after a big night out.

  13. Gab

    The packaging made it hard to see what was inside. The apples were as good as those that were selling, loose, for up to $6 a kilogram.

    For $3/bag I’d take the risk.

  14. JC

    The real point is that it appears Martin made that crap up about the fruit shops.

    No big surprise there. It’s a pretty good example why Fairfax is flat on it’s arse.

  15. Infidel Tiger

    I knew a guy who worked in middle management in CUB and who swore on his grandmother’s grave some years ago that Carlton Crown lager and Fosters lager were exactly the same beer, just poured into different bottles.

    Not true. They are two quite distinct versions of cat piss.

  16. Tel

    … selling special three-kilogram “budget bags” of apples for less than $3.

    The other thing is that people come into the supermarket at lunchtime and buy one apple for their lunch that day, which will be guaranteed cheaper than $3 and better value for a person who only wants one apple.

  17. Michael

    The ruse amounts to theft. The practice should be prohibited by law, and practitioners banned

    hammygar, what are the downsides of selling maximum lettuce? The eater gets a lettuce they might otherwise; a. turned their nose up at, b. thought too expensive. The grocer sells more lettuce. The farmer gets a larger market for his or her lettuce.

    This illustrates one of the evils of capitalism.

    Or does it illustrate the genius of capitalism? Men and women free to choose; free to set their own prices, grow and eat their own lettuce.

  18. Harold

    The rumour with Crown was that it comes from the same vat but from higher up (or lower?). Gravity segments liquid.

  19. Gab

    This illustrates one of the evils of capitalism.

    Renounce all your worldly goods then, your electronic gadgets including the pc you’re typing on to bore people senseless here, for they are products of da ebil capitalism, you trussed up mouth-breathing greenie.

  20. JC

    For $3/bag I’d take the risk.

    Yea but don’t forget that they are able to sell them for 3 bucks a bag because they’re estimating they will sell x for 6 bucks a bag.

    Even in his pathatic trolling Kero boy doesn’t understand that in this case “da rich” are really helping/subsidizing the poor.

  21. Infidel Tiger

    The ruse amounts to theft. The practice should be prohibited by law, and practitioners banned

    I thought Hammy was referring to Martin.

  22. Elizabeth (Lizzie) B.

    I bought some cheaper mangoes yesterday and they were awful. Wish I had bought the more expensive ones that looked the same. Da Hairy Ape just said, stop it, Lizzie, dere is no need for cheap mangoes now you’ve got me.

    He is an expensive mango.

  23. Gab

    Even in his pathatic trolling Kero boy doesn’t understand

    volume discounts. Apparently he thinks they’re eeevvil.

  24. Token

    The packaging made it hard to see what was inside. The apples were as good as those that were selling, loose, for up to $6 a kilogram.

    I could name over 1/2 dozen fruit stores, today, that do that at the current time and they are absolutely packed with customers.

    These same people can find some of the same food cheaper at the Asian grocer nearby, but due to many reasons do not look.

    Hammy should that be made illegal as well?

  25. Elizabeth (Lizzie) B.

    The consumer is as usual taken as a mug.

    Not as usual, Hammy. Retailers just see you coming and respond to visual and other stimuli. Hence your experience and viewpoint.

  26. JC

    Of the little that I know of food shopping especially fruit and veggies (nothing about veggies) the cheaper fruit always seems to be cheaper for a reason. Appearance is how humans discriminate.

    I really have big doubts that the same exact quality is being sold in different parts of the store at different prices.

    It does look different.

    I’m not suggesting it doesn’t happen from time to time, but it wouldn’t be frequent.

    I also think people make the mistake at times of thinking that basic commodities are the same when in fact they aren’t at all.

    Take something as basic as cherries. The quality may differ even if grown on the same farm. They can be picked at different times, spend more time in storage, travel more distance and treated differently through the supply chain.

    My theory is that there is nothing on this earth that can actually be considered identical and at times the differences are bigger than we think. And yes, this applies to basic commods like iron ore and coal etc.

    Oils really aren’t oils, Saul.

  27. steve from brisbane

    It’s not related to fruit, but was it not the Labor government that introduced the per unit pricing that is compulsory on everything now?

    I really do find that a very useful way to compare the same product across different brands in various sizes.

  28. steve from brisbane

    I wish something could be done to disclose the seed size in lychees. I feel cheated if I buy a batch with the really, really big, flesh excluding, seed.

    Perhaps an x-ray of a sizeable sample on display…

  29. JC

    I really do find that a very useful way to compare the same product across different brands in various sizes.

    Yes of course. We need laws forcing people to build most things for the physically handicapped. We needed those laws for all the innumerate leftwing party supporters unable to figure out the most basic divisions in their heads.

    “Gobinment can you help me… how many times does 3 go into 9?”

  30. Louis Hissink

    Next thing Hammy will be suggesting usuary be banned.

  31. steve from brisbane

    JC, as far as I can make out, you don’t lower yourself to entering supermarkets and leave it to “wifey”, so you have no appreciation of the value of the per unit pricing.

    By the way, that Dreamliner you were in love with is a real goer, isn’t it? Hahahaha..

  32. Tel

    Not true. They are two quite distinct versions of cat piss.

    I was hanging around with some Belgians and asked what they thought of Heineken, and the first one said, “It’s piss!”, the other scowled darkly and said, “Worse than that, it’s Dutch piss!”

    That sort of parochial rivalry between next-door cultures somehow just doesn’t translate to Australia, where we have, what, two beer companies, for the whole nation?

  33. steve from brisbane

    where we have, what, two beer companies, for the whole nation?

    Oh my. You haven’t noticed the plethora of boutique beers from Australia at your Dan Murphy? Or been to a boutique beer bar (I was told recently that there are 30 or so in Melbourne.)

  34. Carpe Jugulum

    Carlton Crown lager and Fosters lager were exactly the same beer, just poured into different bottles.

    Grey – that is absolute bullshit, the urban myth was that Abbots Lager(in the yellow can) and Crown lager were the same.

  35. JC

    By the way, that Dreamliner you were in love with is a real goer, isn’t it? Hahahaha..

    Dickhead.. these are teething problems Boeing will deal with.

    How many people have died or had their houses burnt compared to your support of the slapper’s boat policy and the Lurch/Rudd insulation fiasco?

    And furthermore the market is echoing what I’m saying by pushing the stock down from a high of 76 bucks to 74.34 where it closed last night.

    Lastly no one has pulled one single order as a result of these teething problems.

    Shut up you clown. You ought get a lifetime ban.

  36. Tel

    steve, check closely with those “boutique” beers, they are often owned by the major companies. I think James Boag is still independent (… goes and checks the internet …) hmmm, nup Boags is really a Japanese beer now, owned by Kirin.

    OK, Bluetongue must surely be still independent, but I don’t much like the taste (… checks …) damn, Bluetongue is just Fosters.

    Well Potter’s Brewery in the Hunter valley is still independent (shhh, don’t tell anyone) and they make some excellent beers, but you can’t buy them anywhere.

  37. Kel

    Sorry Tel, You need to get out more.

    There are a lot of different beer choices now.

    Smaller breweries are numerous and widespread and many offer quality drops which can be as different from one another as the numerous cheese varieties you can find if you choose to go looking.

    Parochial rivalry is also alive and well amongst Australian “barley pop” consumers.

  38. lotocoti

    So what are the odds Jonathon Holmes will return from his well earned break and deliver a well earned spanking to Peter Martin?

  39. Tel

    I was about to mention the James Squire beers made by Malt Shovel but that’s really Kirin as well.

  40. JC

    So what are the odds Jonathon Holmes will return from his well earned break and deliver a well earned spanking to Peter Martin?

    out of 10?

    minus 38. The science in this one is settled.

  41. All perfectly legal and reasonable in domestic competition. But had the seller been discriminating between export markets, such competitive activity would be a Great Evil (‘import dumping’).

  42. Pedro

    Tel, My Wife’s Bitter.

  43. Grey

    Grey – that is absolute bullshit, the urban myth was that Abbots Lager(in the yellow can) and Crown lager were the same.

    I knew him, I knew he worked for CUB and he swore it blind.
    I am not saying he wasn’t pulling my leg, but it was the longest and deadest pan leg pull I have ever experienced.
    He said the company had done taste testing and people when blinded were totally unable to separate the two into two different groups above the level of random chance.

  44. Pedro

    Grey, I heard basically the same thing from the guys who bought the old valley brewery site, only the Crown was taken from the top of the vat. They were great mates with the head of CUB in qld. No reason to think they were shitting, but it’s true that urban myths are stronger than you would think.

  45. Pyrmonter

    No fan of monopolies, but …

    If the $6/kg fruit is sold loose and subject to inspection, and choice as to quantity, and $3/kg bags are sold without choice and in fixed quantities, these are different products, with different cost structures: the loose fruit will be picked over, have higher marketing cost (re-stacking and sorting) and represents the opportunity cost of optimal product placement. Of course they have different prices.

  46. Tator

    Tel, Coopers is still independent and brews half decent ales and stouts. As for the IT industry crippling products. It is common knowledge as the term is called binning. All cpu’s of the same model ie the Intel i7 are identical and are tested for performance and the ones that work at higher clock speeds are binned as a i7 3770k and the ones that top out at lower speeds are vanilla i7′s that are locked at lower clocks

  47. brc

    the way, that Dreamliner you were in love with is a real goer, isn’t it? Hahahaha

    Is this a poke at Boeing? I saw two dreamliners on the Tarmac at seattle yesterday. They’re going to be awesome.

    I thought this article was about plagiarism or something? Price discrimination is hardly news. Anyone selling stuff who doesn’t price discriminate is a mug.

  48. Tekweni

    I worked in the dairy industry in sales and marketing and we used to just change the labels when had run enough of our own brand of milk and then ran supermarket brands. Much cheaper and easier than resetting everything. Guess which was cheaper?

  49. Biota

    What’s the difference between the grocer’s split marketing and airlines offering $1 flights given certain conditions. Everyone flies on the same aeroplane. Better to fill all the seats at an average profitable price. Same with apples, better to sell them all at an average profitable price.

  50. johanna

    Boag’s may be owned by Kirin, but I don’t think the new management have interfered with the brew.

    I had an icy cold glass of tapped pilsener-style Boag’s (can’t remember the name) on a very hot day recently, and it was magnificent – and I’m not a beer drinker.

    Cost me $4.25, but that’s about what a decent coffee costs around where I bought it.

    I had a Cooper’s a while back that wasn’t bad either – the Extra Strong Vintage Ale.

    Can’t abide the cat’s piss produced by the likes of Fosters.

  51. John A

    Biota, exactly right.

    And what of the banks with their various interest rates on deposits? They discriminate between types of deposit. Same with the loans side, although the range of rates is much narrower, IIRC.

    But it’s all money, right?

    Oh, and just a comment on Arnotts & Sunshine.

    Arnotts became a conglomerate (ABG = Arnotts, Brockhoff, Guests), and Sunshine (prev in Ballarat, Vic) was one of the companies they took over.

    Each name represented a brand presence, and there was a lot of brand loyalty within the customer market place. I am not surprised there were differences in price. Product discrimination leading to price discrimination.

    BUT the various products had different recipes between States, as holiday-makers found out when they bought Tim-Tams, Family Assorted etc in NSW or Qld, and brought them back to Vic.

    Something tells me the story missed the real differentiation but I suppose incompetence is not a hanging offence any more…

  52. Infidel Tiger

    I saw two dreamliners on the Tarmac at seattle yesterday. They’re going to be awesome.

    They will completely revolutionise air travel.

    The only thing that would be better is the reintroduction of smoking sections and air hostesses that are atractive.

  53. JC

    I owned boeing but I sold the stock. 45% of their business are military contracts which I think is going to cop it up the butt going forward.

    However the Dreamliner and the dreamliner portfolio they will introduce will help mitigate the loss.

    It makes me think the head and tail wind are about the same, which means the stock doesn’t do much.

    That of course doesn’t take a thing away from the great technology which the Drealiner represents.

    Anyways, Airbus had serious issues with the 380. One engine on a Qantas 380 literally blew up mid air. In some cases the the wings began to crack.

  54. John Mc

    The only thing that would be better is the reintroduction of smoking sections and air hostesses that are atractive.

    Definitely not on Qantas, but there are probably other nations………

  55. .

    Airbus are trying to ratfuck them with the overexposure of trivial faults.

    I’ve seen how the Airbus A 380 was constructed (friend at subsidiary of rival had some questionably acquired photos sent to him on an email and passed them on…).

    I point blank refuse to fly on those deathtraps.

    For masses of cattle class, a 747-8-I will do.

  56. Mk50 of Brisbane

    IT:

    …and air hostesses that are atractive.

    Fly Virgin, not old boiler air QANTAS

  57. Carpe Jugulum

    He said the company had done taste testing

    Obviously you have never tasted fosters.

    BTW – that story has been going around for at least 20 years, probably longer.

  58. .

    However the Dreamliner and the dreamliner portfolio they will introduce will help mitigate the loss.

    That’s only the Y-2 (mid sized) market.

    The 777 and 747 replacement, the Y-3 project will truly revolutionise travel.

  59. Grey

    Obviously you have never tasted fosters.

    No, I don’t drink beer, I generally just drink organic vegetable juices or fruit juices (but I have cut down on those due to the high sugar content)
    The night I heard one of the group was a dedicated Crown Lager drinker and that is why the guy from CUB brought up as the evening. It was only the indignation of the Carlton Crown drinker that made me remember the story, it dominated the conversation for quite sometime with Mr Carlton Crown insisting it was false and Mr CUB insisting at ever greater length it was true with more and more detail.
    If it was a leg pull he did it brilliantly – at the time I thought it might of been a leg pull, either way the outrage of Mr Carlton Crown made very funny. As a dedicated carrot juice drinker I couldn’t care one way or the other myself.

    I have just repeated the story exactly as Mr CUB said it to the best of my recollection.

  60. Mike of Marion

    Coopers Stout (neat) in winter.

    Coopers Sparkling Ale (cold) in summer.

    Mike

  61. JC

    No, I don’t drink beer, I generally just drink organic vegetable juices or fruit juices (but I have cut down on those due to the high sugar content)

    Of course

  62. John Mc

    As a dedicated carrot juice drinker

    I’m not sure that’s ever been used in a sentence before.

  63. Grey

    Well JC, I do confess that when Rob Oakeshott made his 17 minute speech I was so elated I did allow just a little splash of vodka into my tomato juice to celebrate

  64. John Mc

    You’re gay aren’t you? There’s nothing wrong with that; I’m just trying to make sense of the stuff you’re saying.

  65. Gab

    I think he thinks he really is a grey rabbit. Step away slowly…no sudden moves….

  66. JC

    Well JC, I do confess that when Rob Oakeshott made his 17 minute speech I was so elated I did allow just a little splash of vodka into my tomato juice to celebrate

    Is someone feeding you rat poison, greys. You sound more unbalanced than normal.

  67. Splatacrobat

    Back when Kojak was on TV Telly Savalas made being bald cool. Barbers made a fortune shaving heads in a “Telly” style.

    A barber in New York advertised Telly cuts for white guys $10.00 and Afro’s $15.00.

    His justification for this disparity was “everyone knows coloured tele’s cost more!”.

  68. WhaleHunt Fun

    No, the fact that Oakschotte could take the piss out of the Canberra Gallery by dragging it out as long as that was worth celebrating. The dick was always going to support the Red Barren so it wasn’t newsworthy but the bewildered of the Gallery could not be sure if there arse was attached let alone bleeding obvious outcomes.

  69. WhaleHunt Fun

    Sorry, ” their arse”

  70. Elizabeth (Lizzie) B.

    Tel, My Wife’s Bitter.

    Oh dear, Pedro, I am so sorry.

    So sad for you. Or her perhaps?

  71. wreckage

    Who a brewery is owned by is perfectly irrelevant.

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