Diminishing Marginal Utility, Anchor Pricing & Attraction Tickets

Oct 04, 2015

 

The historic ships in Baltimore, open to tourists, recognize that they offer diminishing marginal utility and price accordingly.

 

A quick look at the prices below shows that access to these ships is discounted aggressively if you want to visit more than one. It costs an adult $11 to visit the first ship, an additional $4 to visit a second, and just $3 more to visit an additional two ships – a discount of over 80%.

Why such a big discount? If people are willing to pay $11 to visit one ship why discount access to the second, third and fourth ship so aggressively?

One answer is that the vendor realizes that their product offers diminishing marginal utility. Touring one historic ship is very exciting, something many visitors would value highly. Visiting four, in sweltering Baltimore summer heat, is less interesting. The vendor chooses to accept this and price in such a way that they still get more money than they would in visitors only purchased access to a single ship.

Another factor is that the four ships are very, very different. One tourist might place a high value on seeing a Civil War era Corvette, and be willing to pay $11 for the privilege. They may be much less interested in seeing a WWII era submarine or lightship. Recognizing that this tourist is likely willing to spend less on access to ships they find less interesting, the vendor responds by charging less.

It may also be that the single ship price is designed to act as an anchor. By establishing the value of access to a single ship at $11, it makes the four-ship package at just $7 more (300% more ships for just 64% more money!) seem like an incredible bargain. If the goal is to sell access at $18 this is a great way to do it.

 

pricing-for-diminishing-marginal-utility.jpg



Category: Examples

Sponsored by FloristWare – Floral POS Software

Beyond Cost Plus is sponsored by FloristWare – the most popular floral POS software system. FloristWare saves you time and money while increasing sales and profits.

FloristWare – flower shop software/POS system.

Related Material

Anchor Pricing In The Extreme

A $55,000 pair of headphones illustrate anchor pricing in the extreme, making even $2,500 headphones feel like a relative bargain.

The Diminishing Marginal Utility Of Draft Beer

Draft beer is highly perishable and offers diminishing marginal utility – a combination that makes discounting larger servings a profitable approach.

Discounting Candy To Account For Diminishing Marginal Utility

Another example that illustrates how the intersection of perishability and diminishing marginal utility determines discounting.

Pricing Attraction Tickets and Bundles

Attractions are a highly perishable product and operators are keen on revenue management – combining bundles and hurdles in an effort to maximize revenue.

Pricing For The Diminishing Marginal Utility Of BBQ

The menu from this BBQ restaurant shows they understand the diminishing marginal utility of their product and price to get customers to buy more anyway.

Category List


Tag List


Tag Cloud



Archive

2018

2017

2016