Customers & Price Differentiation

Disclaimer: This has nothing to do with BA work.

While shopping for a new Moleskine recently (yes, I am that guy) I noticed that the more expensive/up-market the physical retailer, the cheaper their Moleskines were.

My father always used to tell me the same things about wine and scotch. Cases of VB (Cheap beer for any non-Australians) got more expensive as the neighbourhood went up-market, but prices for Glenlivet, Glenmorangie, and Penfolds (Expensive wine for the non-Australians) went down. My father and I had in common high-end tastes, and low-end budgets.

Why?

My father’s explanation was roughly this:

• In a lower-class area someone gets a bit drunk, wins some money gambling, and decides they going to buy something expensive and they’re going to buy it right now.
  
• In an upper-class area someone resolves to replenish their wine cellar or bar and thus decides to buy a specific item and they’re going to buy it when convenient
  

So the idea of a price-conscious consumer looking for the cheapest price for a product is turned on its head. They’ve decided to buy at a set price no matter what the item is. So there’s no point giving them a discount on 16 year old Balevines – because they’ve decided on a price-point so you maximise your margin by having high-margin product in every price range over the normal level.

The traditionally quality-conscious consumer on the other hand becomes price-conscious within his market. You can’t tempt him with a cheap Canadian Club when he wants Talisker, but a convenient and price competitive offering on the Talisker may do it. You need to be price-competitive in the higher end of your market, where people will shop-around, but can afford to have higher margins in the lower end.

As it is with Scotch, so it is with Moleskines.

The cheap-and-nasty stationery retailer in Sydney CBD has the Memo Pockets at almost $30 and hidden up the back; while the relatively up-market one has then at $23 and placed right at the front of the store. Even more interestingly the up-market retailed is even price competitive with EBay to within %10. Retail and price differentiation is so dammn interesting.

If there are any retail companies out there (especially in the rag-trade) that want a Business Architect please give me a yell. I would love to be part of empowering front-end retail staff to make pricing and product-mix decision at a micro-store level by delivering an awesome analytics and what-if analysis right to the register.