Pricing strategies of micro-Economics (I): Price Discrimination

There were a lot of things out of school last semester, so I chose fewer classes at school than I did before. Two weeks after the start of the school year, I dropped a lot of courses, and I paid a few more in the middle of the school year. In the end, I had to take 16 credits for the whole semester. In these 16 credits, I have basically never been to 13 credits of professional courses. I have only been to the history of ancient Chinese literature twice, and I have only reviewed it for one day before the final examination, finally, I walked into the test room in the near-Naked state, facing the danger of being involved in the study. In my opinion, it is important to learn what you want, rather than using various means to obtain higher performance points. The final exams, which are almost entirely dependent on the recitations before the exam, have no value. I am even willing to share my point of view with students.
The course I actually attended last semester only has a three-credit Elective Course, intermediate micro-economics. In this course, I learned a brand new way of thinking about problem analysis, and its value far exceeded that 13 credits of professional courses, it can be said that this is the only thing I learned in my last semester. In micro-economics, monopoly pricing is one of the most interesting things I think. I want to share these simple and profound economic analysis with you, even though the Internet may already be filled with a lot of articles about the relevant content. Everyone will be surprised to find that the mathematical knowledge learned in Junior High School has such a wonderful application in micro-economics.

Many common products, such as rice and cabbage, have many buyers and sellers, and there is little difference between the products themselves. Therefore, individual behaviors cannot change the entire market, and the price is entirely determined by the supply and demand of the entire market. Such a market is called a fully competitive market. In a completely competitive market, sellers cannot manipulate the price themselves.
Some products are different. For example, in the railway, electricity, and other markets, there is usually only one provider of products, and this enterprise can adjust the product price at will. China Telecom, aviation, and other industries do not allow anyone to start from scratch. The participation of new enterprises and the withdrawal of old enterprises both require huge costs, this also determines that there will inevitably not be many commodity providers, and enterprises have room for independent pricing; there are also clothes, mobile phones, books and reports and other commodities, there is a big difference between different commodities, each product has its own uniqueness. Therefore, these industries are not completely competitive, and manufacturers also have their own pricing rights. This raises an interesting topic-how to set a price to maximize the interests of the producer?
There is a second difficulty: The price is too low to earn; the price is too high, and no one buys it. This is a huge flaw in the traditional pricing strategy: no matter how much you set the price, you feel bad-the price is higher than the price may be able to earn more from some buyers, A lower price may win new buyers. If there is a way to sell expensive items to those who are willing to buy at a high price, or to those who just want to buy at a lower price, it would be nice. The policy of giving up uniform pricing and setting different prices for different consumers is called "price discrimination ".
For sellers, the most perfect situation is to have the ability to read from every buyer, to know the highest price that everyone is willing to pay, and sell it to him. This ideal situation of "tailored pricing" for everyone is called "first-level price discrimination ". In real life, first-level price discrimination is obviously unlikely. However, some examples are very close to level 1 price discrimination. For example, the final transaction price varies from person to person in small shops for bargaining, which is a bit of a taste of first-level price discrimination. A smart seller will first ask "How much do you think it is worth" before making a quotation, in order to find out your psychological price. For some people who don't want to cut prices, answering the seller's question is almost completely exposing the highest price they are willing to pay, so a tragic consumer is born in the market.
Although bargaining with every consumer is very close to the first-level price discrimination in the dream, this is not done in every industry. In addition to the "clear price" and other policy reasons, there are sometimes more direct reasons. For example, in the telecom industry, telephone charges and traffic fees can only be priced in a unified manner. It is impossible to bargain with every consumer. Besides, there are a large number of consumers, and the cost information is completely transparent. Therefore, merchants have to find other ways to differentiate consumers of different grades.

 
 

Let's use the data traffic fee for example. At the beginning of the emergence of the GPRS Service, there were not many things that people could do with GPRS. Therefore, we assume that the needs of consumers are similar. 30 mb of traffic per month is sufficient for consumers of data traffic. However, the value of the 30 mb traffic in the consumer's mind is not the same. For a hungry man, the value of the first bread is obviously higher than that of the seventh bread. For consumers, the value of each additional MB of traffic is also decreasing. We assume that the consumer is willing to pay three yuan for the first MB of traffic, but the consumer is willing to pay another 2.9 yuan to get an additional MB, and the third MB is only worth 2.8 yuan, and so on. We use the bar chart on the left to describe the consumer's estimate of each unit of traffic. The sum of all the vertical bars is the total price of the 30 mb of traffic in the consumer's mind. We use a diagonal line in the right graph to reflect the relationship between traffic and price, the triangle area below the diagonal line can be seen as a total price that a consumer is willing to pay for 30 mb-about 45 yuan.

 
 

How can telecom companies make more money by pricing? Like the pricing dilemma mentioned above, the unit price of traffic is not perfect. For example, if the unit price per MB is set to one dollar, the consumer is only willing to purchase 20 mb. Assuming that the cost of providing data services is 0, service providers can only make so much money for a small rectangular area, and all other areas under the diagonal line are released. By setting the unit price to five, you can earn 22.5 yuan from each consumer. At this time, although the unit price has reached the optimal value, the profit is still only 1/2 of the area below the diagonal line. Is there a way to squeeze every cent of the consumer's money? Yes! That is to give up the way to charge by unit price, directly launch a 45 yuan 30 mb package. Since the maximum price that each consumer is willing to pay for 30 mb of traffic is exactly 45 yuan, the consumer will accept this price, so the service provider will earn all the area below the diagonal line. Why is there always so many packages in the telecom business? The secret is here.

Update: if the consumer allows the purchase of any amount of traffic at a unit price (for example, one dollar), the consumer will obviously only buy 20 mb, in this case, the amount consumed by the consumer (the value gained minus the actual expenditure) reaches the maximum. After 20 mb, I feel a loss when I buy more, because the new one MB cannot be so much money. However, if the price is priced in the form of a package, the consumer will have no choice, as long as the price does not exceed the value brought to him, he will buy it. The $45 30 mb package is the most cruel. Consumers can hardly make anything, and their willingness to pay is completely exhausted.

 
Now, an interesting question is coming. Suppose there is a new type of consumer in the data traffic market. It may be because such consumers use GPRS more frequently, or because they have developed a new usage of GPRS to compare traffic fees. In short, 40 MB can meet their needs. Their estimation of the value of each unit of traffic also decreases with the increase of traffic. They are willing to spend 4 yuan for the first MB of traffic, but they are willing to spend only 3.9 yuan to buy the second MB, and so on. In this way, there are two consumers with different consumption aspirations in the market. We may call them "low-end consumers" and "high-end consumers" respectively ".

 
 

If only one 30 mb package is launched, only two A-area packages can be made, which wastes the huge potential of high-end consumers. If only the 40 MB package is launched, only A + B + C can be earned, ignoring the purchasing power of low-end consumers. To balance the two types of consumers and extract the most money from the consumers, this time we need to abandon the unified pricing policy and launch two packages: 45 yuan, 30 mb, and 80 RMB 40 MB. Low-end consumers are willing to purchase 30 mb with the amount represented by Area A, and high-end consumers are willing to purchase 40 MB with Area A + B + C, so they can accept their own plans, purchase data services at the highest price you are willing to pay. This is a fresh form of price discrimination: to set different prices for each type of consumers. However, we have discovered a problem that we have never encountered before: high-end consumers may find that buying the previous package seems to be more cost-for high-end consumers, the value of 30 mb is equal to the value of Area A and Area B. But now we only need to use area A to get the value of 30 mb. Why not? In addition, the value of 10 MB of traffic to high-end consumers is only equivalent to the Area C of the region, but you need to add B + C on the basis of the low-end package, the loss is significant. This is the most difficult part to achieve price discrimination: Since consumers cannot be differentiated by bargaining and other means, in an open market environment, how can we prevent high-end consumers from imitating low-end consumers to consume low-end packages?

To enable high-end consumers to automatically choose a high-end package, we must make high-end consumers feel that purchasing a high-end package is better than purchasing a low-end package. Therefore, we think of the following improved pricing method. Low-end package: Area A purchases 30 mb; high-end package: Area A + C purchases 40 MB. High-end consumers will find that, after purchasing 30 mb of traffic, they will receive an additional 10 MB which is equivalent to Area C, that is, the additional cost of purchasing a 40 MB package. Therefore, high-end consumers will feel that it is worthwhile to spend a larger area of C, so as to take the initiative to choose the next package. In this way, service providers will earn a + A + C from both types of consumers. Although such a package pricing cannot earn every cent the consumer is willing to pay, it can automatically differentiate the two types of consumers so that each type of consumers will automatically choose the appropriate package, consumers are treated differently to make more money than unified pricing. We set different prices for different quantities of commodities, so that high consumers can automatically choose high-price commodities. The pricing policy is called "second-level price discrimination ". Such examples are widely used in our daily lives. The price policy of "one piece of 30 yuan and two pieces of 50 yuan" and "large amount of conformances" is essentially a typical example of second-level price discrimination.

 
 

Interestingly, the above package settings are not the best and can be improved. As high-end consumers are willing to spend more money, we can find a way to increase the gap between the high-end package and the low-end package, so as to charge higher fees for high-end consumers. For example, set two packages as shown in the preceding figure. The area a' is bought x mb, and the area a' + D + E + C is bought 40 MB. The low-end consumer will find that the price he is willing to pay for the first x mb is exactly area A', so he is willing to accept Package; high-end consumers find that the traffic is expanded to 40 MB, and the price is exactly the same as the Area D + E + C. Therefore, they will purchase a 40 MB package. At this time, the area earned by the service provider is a' area, and the area of a' + D + E + C is less than the original area of D, however, I earned an extra e area. Because region E is larger than region D, this package is better than the original one.

 
 

How much can X be used to achieve the optimal performance? Note: As long as the red dotted line is shorter than the blue dotted line, reducing the value of X can always ensure that the change of Area E is larger than the change of Area D. When x = 20, the dotted lines of the two colors are as long as they are, and the low-end package is reached the limit. Therefore, in this example, the final second-level price discrimination strategy is to set 20 mb and 40 MB packages, their prices are area a' and area a' + D + E + C respectively.

Here we see an interesting phenomenon: making low-end products lower-end products will increase the profits of producers. You only need to note that the horizontal axis in the example does not always represent the quantity of commodities, but it can also be used to represent the quality of commodities, we will find that the second-level price discrimination theory can explain many strange phenomena in our lives. On the surface, there are three types of express delivery services: arrival the next day, arrival the next day, and normal arrival. However, it is clear that normal arrival does not really take longer to arrive. Even if different services are selected for the express delivery on the same day, they are all delivered on the same day. However, the next day, the courier will be in the warehouse for one more day, the normal arrival of the courier will be idle for a longer time. Some people may wonder, isn't that a problem? Why do we have to send everything we can deliver today tomorrow? In fact, this seemingly unreasonable practice is the second-level price discrimination mentioned above. Express Delivery Companies artificially divide express delivery services into three different levels, and intentionally set up low-end services, so that consumers can sit on their own consumption levels. The four-class ship is dirty and smelly. Many passengers complain that the environment of the Four-class ship can be improved slightly at a very low cost. Why not do this? In fact, this is also the need for price discrimination. In order to differentiate products of different grades, merchants intentionally set a low-end consumer goods for those who have low willingness to pay.
Second-level price discrimination has some more incredible examples. In order to achieve price discrimination, the product R & D department sometimes faces seemingly unreasonable design requirements-a part that was previously specifically developed by IBM for printer development to speed down printing. After a new batch of goods is added to the supermarket, a special sale will be held to sell damaged goods during transportation at a low price. Will so many Accidental damages occur during each transportation? Some people are surprised to find that all the products that are claimed to be damaged during transportation are damaged by a hammer when the seller arrives! With the price discrimination theory, many strange phenomena in life have been reasonably explained.

 
In addition to distinguishing consumers by products of different grades, sometimes there are other ways for sellers to directly differentiate buyers with different consumption levels. If sellers can successfully differentiate consumers of different grades, they will be offered different prices without turning around. This is called "three-level price discrimination ". Amusement park tickets, movie tickets, train tickets and other goods cannot be divided into first-class and second-class goods, so second-level price discrimination is useless here. However, sellers can still come up with a trick to differentiate pricing: they can enjoy a discount if they hold a student ID card. Because the consumption level of student groups is low, and the use of student ID cards can easily distinguish such consumers, sellers can directly offer preferential prices for such consumers, so as to ensure the extraction of high-end consumers, this will not cause loss to low-end consumers. The prices of the same item vary in different provinces and cities, and the expressway charges different fees for different models. These are the most typical three-level price discrimination.
Of course, there are some atypical, hidden, third-level price discrimination. Merchants often secretly arrange a game to identify your consumption grade based on your behavior. In many malls, restaurants, or hotels, the way to get a lower discount is simply to ask "discount ". Don't underestimate this small detail. If you don't ask, this statement reflects the buyer's consumption level to a large extent. According to the behavior details, consumers are divided into two levels to provide them with different prices, taking into account different consumer groups. This is a concealed three-level price discrimination strategy. E-mall can also differentiate different consumer groups based on user operations. Some sinister and cunning electronic malls may intentionally offer higher prices after users click "sort by price from high to low", in order to make more money from high-end consumers.
There are also some more concealed third-level price discrimination. It takes a lot of cost to print and issue coupons. Why doesn't McDonald's offer discounts directly in the restaurant, but instead, they offer discounts through coupons? In fact, providing coupons is a very concealed level-3 Price discrimination. It is said that only 30% of the people who get the coupon will intentionally leave it for future use. The other 70% will lose it if it is not put, or expire if it is put, many people even threw away their coupons. Based on this, consumers are automatically divided into two groups. In this way, sellers can extract more money from high-end consumers and offer preferential prices for low-end consumers who are sensitive to prices. When buying many electronic products abroad, there is a preferential price strategy called "mail kickback", that is to say, after buying something, the receipt, feedback card, kickback application form and other items are sorted and sent back to the manufacturer, the manufacturer will return the amount of money in the form of a check. The amount of money returned is dozens of knives, and the amount returned is more than one hundred knives, which is undoubtedly a huge temptation for consumers. But in fact, it is very troublesome to apply for a kickback. It is impossible to send anything back to the manufacturer. Therefore, there are not many people who have carefully sorted out the materials for applying for kickbacks after returning to their homes. Many people may not be confused about the procedures, or forget to leave the materials. Only consumers who are especially price-sensitive and really care about kickbacks can apply for kickbacks. High-end consumers and low-end consumers are differentiated in this way.