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.