> you're playing with house money including the bonus
No, you are never doing this. The prices should just be 5% cheaper and there should be no 'bonus'. The fare is obviously set taking the bonus into account, so it makes more sense to just drop the prices and to drop the bonus.
> If businesses are trying to get more money, they should do it by transparently raising prices instead of tricking people into paying hidden fees.
Yup. This seems like a terrible long term strategy. If I'd eaten expecting $X, and the total is now $X + $Y, and they have the nerve to remind me it's not a tip, I'm probably not leaving a tip, and I'm -definitely- not coming back.
Most cities are rather static in populace. This is a great way to see yourself out of business for a tiny short term profit.
> In the best outcome, the customer would be paying exactly the same amount that they pay now, or more, it just wouldn't be separated or optional in the bill.
I'd pay a premium just to avoid the distasteful master-servant relationship. It's insulting to assume that the customer would enjoy lording over others.
> just because they want a discount
It never crossed my mind that people do this. That's lousy.
>because their customers are extremely price sensitive
The proposal suggests to me that they think their customers are not extremely price sensitive but they're also not loyal to a specific supplier. In other words, they'll take almost as many rides even if the price goes up but they'll still go with whoever is cheapest.
> With all the important things being equal, I choose the service with the much smaller market share and encourage others to do so as well.
The problem with this is it increases your risk that the company will simply go out of business, which could be even worse than raising prices 10x as in the example.
I think it can also raise risk that the company will significantly change it's pricing model too, they don't want to be a 3% market share.
> just to result in the exact same fees being rolled into the remaining SKUs
Yes, that’s the stated goal: if I’m looking for plane flights, I don’t want to think United is cheaper because I haven’t gotten to step seven of the checkout flow where they say that oxygen is billed separately and the bathroom takes all major credit cards.
Companies are adding these fees instead of raising prices precisely because it makes comparison shopping harder, and that’s never good for society as a whole. They’re keenly aware of the psychology here: once people start putting in the cost of filling out forms, etc. they’re less likely to abort halfway in even if the additional fees bring the total higher than they would have picked at the beginning. The companies have spent a lot of additional time and money redesigning their systems to exploit this, and you’re paying for all of that.
> but it does not work like that. because you know that you would get a lot more customers if you cut your price 20-30% while keeping your profit margin.
That is very situational and hard to predict. There is a whole discipline behind this statement for figuring out the right answer.
> They would not risk breaking even or losing money if people opted out more than expected.
Loss-leader. Allows them to advertise a low base price, but most people will pay more.
> It's a false choice
Lol it’s not - you can genuinely choose to never pay for it, to pay later, or pay up front. Those are all useful choices I can imagine real people exercising.
Why do you think it’s an illusion? Why is not paying not an option?
> If I stood in front of your front door with a gun in hand
It’s a car seat heater. It’s a luxury. Nothing as dramatic.
> The merchant just raises prices so you can pretend like your points are saving you money.
No, you are saving money, because while the merchant raises the price to account for it, everyone gets the higher price regardless how you pay. At least with a card you can get some of it back.
(With rare exceptions, some vendors do give a cash discount. In which case I always pay cash.)
Please don't imply people didn't read the article. It's boring, unnecessarily rude, against the guidelines [1], and at least in this case I did read the entire article and agree with that comment.
There is no low hanging fruit when you divide up the pricing the way he did, but transportation is part of nearly every category that he divided it up into. From the data he shows we don't have any reason to think that transportation is not a single substantial fraction of the house cost, when you some up all the different transportation costs between the different sections he uses.
To make an analogy to programming, transportation is like an allocator, and his data shows that execution time is spent evenly between 20 different functions. But all of those functions allocate, it's perfectly plausible the program is spending 50% of it's time in it's allocator and that speeding up that allocator by 50% would reduce the overall execution time by 25%.
> This is just taking advantage of the poor-middle class' inability to pay a larger upfront cost, to extort them for more over a larger period of time.
How on earth is charging more money for a lower upfront cost "extortion"? If you remove the option, you're not magically granting people the upfront cost, you're just cutting them off from access at all. Are you not aware of the time value of money?
> Imagine you have bought two non-refundable tickets to different trips, one much more costly. You are then told that you must cancel one of them. In this case, many people will cancel the cheaper trip regardless of which one they would prefer to go on – and even though they will have spent the same amount of money either way.
I think a better example to sunken cost bias could be found than this one as people usually pay more for trips that they prefer more in the first place.
>First the amounts won't end up nice and round at particular hot button price points
Why? The price is designed to end up that way, if people will have to add 15% on every item they will modify their cost structure.
>airline tickets
yes if I want to add a service I pay, but in a restaurant I don't have the option to be served without the waiter, so it's not fair to the consumer that has the right to know how much he has to pay when he orders something.
When a book a ticket the full price is displayed before I make the purchase, not after I used the service.
Also for the waiter lobster and champagne require the same effort of soup and tap water, so it's not like adding a language of 15 or 20 kg.
> I have never heard of a business that reaches $x of profit and then switches to pricing everything so that they get $0 of profit.
Isn't this the business model of tons of huge companies? Amazon famously ran at very deliberately low profits for years. Uber and Lyft have margins so low they're losing tons of money in an attempt to get market share.
No, you are never doing this. The prices should just be 5% cheaper and there should be no 'bonus'. The fare is obviously set taking the bonus into account, so it makes more sense to just drop the prices and to drop the bonus.
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