April 25, 2007The $14 Apple
Filed Under: New Marketing
|
|
Wise Jas-one Kenobi writes this post about what he calls "abusive pricing" (I normally talk about abusive frequency with respect to media, but that's another story for another day)
He cites being charged $2.80 for a cup of drip coffee at a New York hotel and says the following:
My belief is that the reason people get away with this kind of pricing is because people are not willing to say something. I think that people do predatory pricing because they can get away with it--when confronted they will stop, or at least be forced to explain themselves.
I found it interesting that Jason lets Starbucks off the hook and as I wrote in my comment:
Abusive pricing I guess is a function of what the market will bear. One one hand, it is based on the forces of supply and demand, coupled with the premium afforded to brands.I'm not saying this is right, I'm just saying it is what it is.
On the other hand, you bring up something that has nothing to do with pricing whatsoever, but more about common sense. The best example being the $14 apple.
You're paying $400 for a room, but complaining about a cup of coffee...I guess it all comes down to expectations and the management thereof. There is also the notion of perceived value.
The $14 apple (you've all been there) refers to the single apple you order from room service that comes bundled with state tax, city tax, hotel tax, tax tax, monopoly tax, airport tax, tray charges (sheesh, at least let me keep the tray) and of course the 23% gratuity for the exemplary and flawless transfer of one (1) tray from them to you without stepping on a land mine, landing in a hazard or spilling a drop of the sealed water in the process.
This is one of those cases where companies need to use a bit of subjectivity and good judgement. How hard is it to deliver an apple with a smile and "no charge" for example? But if we do that for one person, we'd have to do that for everyone! SO DAMN WHAT!
Jason's post really gets you to thinking about the P of Pricing. Not only has it become a commodity in many cases, but I believe it can also be somewhat of a liability in an era of "perfect information".
- Is it ok to overcharge based on a notion that brands should command a premium?
- Do brands deserve to charge the kinds of premiums they used to or should premiums be placed equally on "product" and "experience" (I'm alluding to the artificial aura of fuzziness created by advertising)
- At what point do brands cross a line and take advantage of their customers (Apple and iPods perhaps)?
Makes you think...
SPONSORSHIPJaffe Juice – brings a fresh new marketing perspective and commentary from industry thought leader and author Joseph Jaffe. Click here to find out more about sponsorship opportunities. Jaffe Juice continues below... |
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/t/trackback/307546/18004502
Listed below are links to weblogs that reference The $14 Apple:
Comments
I think you answered it yourself. You can't forget about the costs behind that cup of coffee, or the $14 apple. There's all those taxes to add on, sky-high rent to pay, and oh-my-God, healthcare benefits (maybe!) for the underpaid server who actually delivers your coffee or apple. If you don't want to pay the price, walk out onto the street and patronize a neighborhood coffeeshop or market... but don't sit in your $400 a night room and complain about an overpriced apple.
Posted by: David Tirpack
Go David! Maybe before we order room service, we could do a quick "opportunity cost" calculation, to wit: Is the value of the time I'd spend leaving my $400 a night room, seeking out a neighborhood coffeshop or market, selecting and purchasing an apple, then finding my way back to my $400 a night room worth more or less than $14? (The answer to this might depend on whether I'd spend the time waiting for room service to arrive either i) writing a page of a best-selling book or ii) slumped in front of "Dancing With The Stars").
Posted by: Andrew Horberry
Actions always speak louder than words. It won't do any good to complain to management about the $14 apple while you sit in your $400 room eating said apple. We have produced this monster ourselves by giving in to the notion that higher price obviously means higher quality - that premium products must be followed with a premium price. As long as there are people willing to pay for it, we will continue to see $14 apples.
Posted by: Ron Hayes
What's amazing Joe, is that your friend Jason presents this as an original idea.
's one of the problems with you internet types: you keep offering up things like this with the notion that you're the first ones to think of them.
Posted by: tangerine Toad
Toad,
You're croaking up the wrong tree here.
I don't think Jason is purporting to have coined a phrase or taking the credit for it as much as he is just relaying something that happened to him and commenting on it.
Just to humor you, exactly what are you claiming to be the existing meme?
Posted by: jJ
Well to humor you back:
Every 20something corporate type goes on his/her first business trip, orders a bowl of Rice Crispies for breakfast and finds that the hotel has charged $25 for this. Back at the office, he/she comments on this to friends and says something to the effect of "if we all just refused to pay $25 for a box of cereal, then they wouldn't be able to charge this much. They're ripping us off."
At some point, one of these friends points out that the economic model of hotels is built on $25 bowls of Rice Crispies (and $14 apples), that room service is a major profit center for them and that the alternative would be to charge more for the room itself. In other words, that cost will get passed on to you in one form or other.
If the junior employee protests further, the wise friend will explain how the reason for this is simple: hotels have figured out that corporate travel budgets often have per night restrictions on room rates. So it's in their interest to say charge $299/night for a $350 room, keeping it under the $300 limit, and then make up the difference on room service. (It's even more important now that they've lost the revenue from phone calls, since everyone uses their cell phone these days.)
So when your friend comments upon things like $14 apples in such a naive manner, it makes him sound like a 22 year old just back from his first business trip.
Posted by: Tangerine Toad
Yeah :-)
I guess it does kinda
Posted by: Robert Hawker
