Choosing When Not To Price Discriminate – @Pinkberry Doing It Right

Last I reported on Pinkberry frozen yogurt store prices I wrote about their decision to price different flavors differently. That is a form of price discrimination (second degree to be exact and it is a good thing). Typically ice cream shops and coffee shops price discriminate on the size dimension (small, medium and large). Pinkberry did that and some. They offered Plain (just plain with no flavors) at one (lower) price and priced all other flavors at a higher price.

Surely you did not think the flavors were priced higher because of the added cost, did you?

(Second degree) Price discrimination is good because it allows the marketer to offer different product versions to different customers and letting them self-select to the version they want to pay. If there were some who would like Pinkberry yogurt but did not want to pay $3.00 they could choose Plain (assuming they do not care for the lack of flavor). On the other hand for those who have higher willingness to pay the flavor less Plain acted like the third-class train car without roof.

But all these many different versions come at cost – the cognitive costs customers incur in making the choice from many different sizes, cup or cone, toppings, plain vs. flavor, and specific flavor.  Besides there is enough evidence to show that customers do not allocate different values across flavors (that is why Strawberry and Raspberry yogurts are priced the same in stores).

My last report on Dropbox non-linear pricing made me go back and revisit Pinkberry pricing. After all I am not in their target segment I cannot be always up to date on their prices can I?

It appears Pinkberry has read my previous article, listened to their customers or looked at their POS data and decided to simplify. They no more price discriminate on flavors. See new prices from New York stores. Look carefully. Notice anything? What did they do to Plain prices which used to be 50 cents cheaper?

pinkberry-orig

pinkberry-peach

Yes, of course no more lower price for Plain yogurt. They likely found from the Point of Sale (POS) data that very few opted for Plain and if so they might as well pay higher price for it. And for those lower willingness to pay customers? Well they are not Pinkberry customers anyway.

How do you decide on your many different versions and their prices? Is it time to look at simplification?

Why are @Pinkberry yogurt flavors priced differently?

This is yet another questions only article. Answering the questions is left as an exercise to the reader, which you can do from other articles in this blog.

Take a look at the picture of menus from Pinkberry frozen yogurt chain. The one on the left is the online menu for their New York stores and the one on the right is from one of their stores in California. You may notice the price difference between New York and California for the same flavor and size but that topic is not the question I want to pose here.

Notice the price difference between Original and  Flavored varieties for a given size? (click on the image to enlarge it)

Notice how the price difference varies between the two states?

In New York,

  • The smallest size, Mini is priced the same for Original and Flavored varieties
  • For the rest of the sizes, the Flavored varieties (all flavors) are priced 50 cents more than the Original
In California the prices are different across all sizes,
  • Mini is priced only 50 cents more than the Original
  • The rest are priced $1 more than the Original

Why are the Original and Flavored varities priced differently – between the two states and between sizes?

Before you answer this question let me point you to a research that asked a different question.

Why are strawberry and raspberry yogurts priced the same?

The yogurts in this question are the normal kind we find in supermarket aisle. The researchers who studied the question by looking at store sales numbers concluded,

We find that consumers value line attributes more than flavor attributes. Given that consumers value line attributes more than flavor attributes,  firms have a lot to gain by pricing their product lines differently whereas they have little to lose from pricing all flavors within a line the same. We also find that the value of a product line is not merely a function of the number of  flavors it includes

Now you can think about the answer.

For extra credit, think about the cognitive cost to customers making purchasing decision from the price differences between Flavored and Original choices.  Do you believe the additional profit is worth the cost to customer and the likely degradation of customer’s buying experience?

Do self-serve yogurt chains like Tutti Frutti that offer same price for all flavors and toppings are at an advantage in both delivering better buying experience and average sale price?

 

Self Serve and Price Realization

Previously I wrote about the self-serve frozen yogurt stores in the context of creative packaging for better price realization. To refresh your memory, these self-serve frozen yogurt stores price and sell yogurt based on weight. They give you a container and ask you to fill it up with any one of the many flavors and toppings and then charge you one single price per unit weight.

The hypothesis I made then was that self serve option made customers spend more then they imagined they would. To be sure, it was based on a single visit to one frozen yogurt store.

Fortunately someone else collected data on the average customer spend in non-self-serve and self-serve frozen yogurt stores. Recently, the Small Business section of WSJ published data that is likely based on more than one visit,

With weight-based pricing, the average self-serve ticket is $6.32, compared with $5.61 at a traditional store, says a TCBY spokeswoman.

That is 71 cents more than traditional store. But questions remain,

First, is that increase all due to self-serve? The WSJ article calls it, “giving power to people”?  Do we feel so empowered that we end up spending more? Is this because we feel less comfortable asking someone behind the counter for something we desire?

I can hear Customer service and “co-creation” evangelists jumping to big conclusion about the incremental profit from customer empowerment.

The answer is not straightforward. While the customer spend numbers may be based on TCBY observing years worth of data from its many stores, it is not correct to attribute causation to mere customer empowerment aspect. Data may fit one hypothesis but it can also fit any number of plausible hypotheses.


Another hypothesis is the one due to the shape of the container.

Shorter Wider Containers

The containers used in all these self-restaurant have a common pattern. They are all much wider than the containers we see in traditional yogurt stores.

As the research by INSEAD and by Brian Wansink indicate, we lose our ability to judge volume with wider containers. In addition wider bottom nudges us to cover the entire bottom and then build on it. It surely would feel odd to have yogurt in just one small area of wider bottom.

In addition we also do not know how much we spent. It is not that we are adding one scoop at at a time. We do not know the concept of weight. So by the time we take the container to the counter to pay, we have no idea of the price we are going to pay unlike traditional places that list the price right upfront before we make the decision.

The net result is we end up filling up lot more than what we likely want to eat and spend lot more than we normally would do at traditional yogurt places.

To say, “power to the people” (or “co-creation”) is the reason for higher spend is not correct unless someone can do multiple different experiments and run step-wise regression to find out what percentage of changes in average spend can be attributed to “the feeling of empowerment from self-serve”.

Second, should you as a small business considering yogurt store opt for self-serve model over traditional store?  Talk to me, I can help you run a model to see if that is the case.