Lessons On Hurdles In Price Discrimination From The Airport

Jun 18, 2015

Airport car services use a well designed hurdle as part of a price discrimination strategy that limits discounts to only the most price sensitive buyers.

One of the airport car services employ hurdles as part of a price discrimination strategy that is beautifully constructed. As long as they have more cars than riders they'll discount to price sensitive customers – the customers that might not be willing to pay full price. Maybe they'd call a friend or spouse, maybe they'd take public transit, maybe some kind of shared shuttle service. The only thing that matters is that they won't pay full price.

The car service will discount to these customers if that is what it takes to get their business. It means they make a smaller profit on the ride, but it's better than no profit at all.

But they don't want to discount to the customers that are prepared to pay full fare. The business traveller on an expense account doesn't care and will happily full price, and the care service wants to make sure that they get full price. If they discount to that customer they are cannibalizing full price sales.

This is called price discrimination – selling the same product or service to different customers based on the their willingness to pay.

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