Sunday, June 16, 2013

Why principles of pricing/price discrimination do not work at barber saloons

    Whenever I visit a barber's(or to be more politically correct. hairdresser!) saloon and pay the same rate on a Sunday morning as on a weekday afternoon, I wonder about what if the barber was to apply management principles of pricing to do the following:-
  1. There would be price discrimination by time(charge more on Sundays/evenings)
  2. Each person would be charged differently as per ability to pay-the migrant on daily wages would pay less than the CEO
  3. There would be a membership with credits, to encourage repeated visits to that saloon, and other perks like loyalty program, and benefits like appointments through apps to minimize waiting
          However we have the benefit of observing a corporate chain of saloons i.e Javed Habib, and I notice this does not happen. Why is this so? Firstly, price discrimination by time i.e applying congestion pricing[charging more during high peak hours] would need customer assent, and is more difficult to stomach than merely raising the average price. Secondly, the customer DOES incur some waiting time(indirect costs) while having haircuts done during peak hours, so it is in his interest to come during off peak hours.

Ability to pay is factored in since saloon rent/wages are factored in the costing. And those who care about these costs would frequent a roadside barber or less expensive saloon. So it does not matter, and is not required i.e price discrimination as per ability to pay.

Since people usually frequent the same saloon/barber, loyalty program would entail unnecessary complexity and expenditure-something like why electronic micropayments is not taking off in India, when there is a much easier option i.e cash/notes/ which will anyways be there, why add complexity.

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