I recently opened a sub shop named “My Hero” in Wilmington, NC. It is close to the UNCW campus and Wrightsville Beach. Business has been fair, but I’d like to use a price discrimination strategy to increase profitability. The consumer groups that patronize my sub shop are: students, local residents and tourists. Demonstrated in this article are ways to target those consumer groups to maximize profitability.
Affordability is a key factor in capturing a higher percentage of college students as customers. I need to set a lower price for this consumer type because the student has a more elastic price elasticity of demand (“Third Degree Price Discrimination,” 2011). If I give a 10% discount to students, I can increase profitability. “When the price decreases, total revenue (price times quantity sold) increases because the percentage increase in the quantity demanded exceeds the percentage decrease in price” (O’Sullivan, Sheffrin, & Perez, 2010, p. 165).
Price discrimination will also be specifically geared to targeting visitors to Wilmington. “Tourism, one of North Carolina's largest industries, plays a major role in Wilmington's economic vitality and is one of the area's top industries” (“Wilmington Cape Fear Coast Keeps It Fresh,” 2003). I will put 10% discount coupons within menus in each area hotels tourism literature rack to try and capture the visitors business. This type of consumer would also have a more elastic price demand and the discount offered could increase quantity demanded.
Offering a lower priced children’s meal is another method of price discrimination that I could use. Adding smaller portioned and lower priced children’s meals into the menu would encourage the locals to eat at my sub shop with healthier options for their children, as opposed to a fast food restaurant offering kid’s meals. I will include a disclaimer that kid’s meals are for 12 and under to discourage college kids from ordering.
These three methods of price...