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The Shared Economic Logic of SiriusXM and Higher Ed | Inside Higher Ed

Question: How are the economics of satellite radio and higher education the same?

Answer: Price discrimination.

Before we get too upset, however, we need to define what price discrimination is.  The name makes it sound worse than it is.  All price discrimination means is that sellers will try to sell their product or service at the price that the customer is willing to pay.

Price discrimination is not illegal.  Or at least seldom ever illegal.  (Gender or race-based price discrimination is, though tell that to hair salons and dry cleaners).

Price discrimination is also everywhere.

Book an airline ticket, and you will be charged based on your willingness to pay – as indicated by how far in advance you buy the ticket, how direct a flight you want, and what level of service you require.

Got to Starbucks, and the barista will make a coffee for you based on your willingness to pay for one.

Frugal coffee drinkers will choose a tall iced coffee ($2.25).  A customer treating themselves to a therapeutic beverage can order a Venti Pumpkin Spice Latte with an extra shot and extra vanilla syrup, forking over $6.50.   The cost of ingredients between these two drinks is not all that different.  The price difference is based some on the time it takes the barista to make the drink, but mostly on the willingness of the customer to pay.

We are okay with price discrimination if we feel that we understand the reason behind the price differences.  When it comes to pricing, we want transparency, and we want fairness.

The problem with SiriusXM is not that they price discriminate, but that they do so in what feels like a sneaky way.

Read complete article here:

The Shared Economic Logic of SiriusXM and Higher Ed | Technology and Learning.

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