On Pricing

Comments   2   Date Arrow  February 17, 2005 at 2:55pm   User  by joel

I promise this isn’t going to turn into a Grocery Blog, but Giant just ticked me off. And the more I think about it, the more I understand what they’re trying to do, and in a way it makes sense from their perspective. But that doesn’t mean I agree with it, much less like it, and the drive to Safeway is just as quick. Food Lion and Shoppers aren’t too much farther.

Let me explain. Two months ago Joel Spolsky, software engineer, author, and generally regarded Smart Guy, wrote a wonderfully informative and delightfully confusing post about product pricing that, among other things, finally explained to me why companies offer coupons and airlines charge wildly different prices for every person on the same flight. It’s an excellent article, and if you have even a passing curiousity about these things I highly recommend reading it. But to sum up, the basic idea is that you offer the same thing at different prices to (specific) different people so as to maximize your profit. Economists use terms like ‘Segmenting the Market’ and ‘Capturing the Consumer Surplus’. You do your market research and find out that most people will pay X for your widget, so that’s what you charge, but then you offer discounts to the sort of folks who wouldn’t pay X but were willing to pay X – 5 so as to at least get some profit from them, all while trying to hide from group X the fact that you’re giving someone else the same thing for less money. Because naturally, if you find out that your neighbor just bought the same widget from the same company you did and paid less for it, you’re going to feel ripped off.

Well, I feel ripped off.

This afternoon Andi was talking to a friend of hers who lives in the same area we moved from two years ago, which area I still drive through every day to and from work. Outside of rush hour, it’s about 20-30 minutes away from our house. Her friend casually mentioned the coupon on the front of this week’s Giant circular offering $5 off any order over $50. Curiously, said coupon was missing from the front of our circular. They started comparing other sale prices, and discovered a distinct discrepancy in the sale prices on the front page. We could get a pound of strawberries (in February?) at two for $5, she saw $1.99 each. Chicken on sale for $1.99/lb. for us, $1.79/lb. for her. Edy’s ice cream at half price at our store, better than half price at the other store. Andi’s friend has friends and family in other parts of northern Virginia, and it turns out our prices match those in areas like McClean and Vienna (areas closer in to the beltway and generally higher on the affluence-meter than others) even though we’re a good bit farther away. They’re not huge differences, but the whole point of coupons on our part is that twenty five cents here and fifty cents there adds up. And the difference must certainly add up to the store for them to go to the trouble of creating not only different pricing structures but different sale pricing structures for different communities.

And yet, even as I write this I feel myself slipping into suck-it-up-and-deal mode. Pricing-per-community is nothing new — gas stations have been doing it for years. And our area is one of the faster growing in the region, enough to justify a substantial and still under-construction shopping area with Target, Lowe’s, what’s shaping up to be a huge Pier 1, PetSmart, Starbucks, Panera, etc., a huge new firehouse right down the street, McMansions popping up like weeds, and a massive new development project in the works that promises to make the area all but unrecognizable in five years with more of the same and new roads to boot. So from a business perspective, it makes sense. But for a S.I.T.C.O.M. (Single Income, Two Children, Oppressive Mortgage) family that takes the time to clip coupons and look for sales, it feels like a poke in the eye. And the other Giant is right on my way home from work…

Tagged   Just Life


  • #1.   djchuang 02.18.2005

    You almost said it, that Joel Spolsky has a cool first name! :)

    There is a grocery LISTS blog — http://www.grocerylists.org/

  • #2.   Dad 02.19.2005

    I’m sure Safeway, Food Lion & Shoppers are doing the samre thing as Giant. Looks like you’ll be doing the same thing that the rest of society tends to do. Shop on your way home.
    Sorry you had to learn this leason.

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