<story><title>Purchasing Power Parity: Fair pricing for SaaS products</title><url>https://scastiel.dev/implement-ppp-fair-pricing-for-your-product</url></story><parent_chain><item><author>inopinatus</author><text>Car rentals often show wide variation based on visitor origin. This was observed decades ago (I recall an economics professor mentioning it way back), and on a cursory check just now I was quoted up to 40% lower prices at an international airport, for an otherwise identical rental, by presenting as European* rather than American or Australian.&lt;p&gt;Such a difference cannot be explained by PPP or insurance factors. We might conjecture that consumer expectations account for the price discrimination, e.g. visitors from Europe may be accustomed to high quality integrated mass transit (including to&amp;#x2F;from the airport) and thus resent a high car rental price, whilst Australians and Americans assume they&amp;#x27;ll need a rental to get around, with consequently higher willingness to pay.&lt;p&gt;* tested with UK, France, Germany, Italy, and the Netherlands.</text></item><item><author>paxys</author><text>The economics term for this is Price Discrimination (&lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.investopedia.com&amp;#x2F;terms&amp;#x2F;p&amp;#x2F;price_discrimination.asp&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.investopedia.com&amp;#x2F;terms&amp;#x2F;p&amp;#x2F;price_discrimination.as...&lt;/a&gt;).&lt;p&gt;I don&amp;#x27;t want to go into fair or unfair as the author does (that is a very complex discussion), but it is definitely the most optimal way to price your product. The basic idea is – charge every customer the max they are willing to pay. As long as everyone is above the break-even point, you will maximize your profits.&lt;p&gt;This is definitely not a new idea (&amp;quot;emerged these past few months&amp;quot; as the author states). I remember people would pack their bags with boxes of Microsoft Windows and Office when coming back from foreign trips. Same goes for subscription pricing. That premium $20&amp;#x2F;mo Netflix plan costs $4 in Turkey.&lt;p&gt;It&amp;#x27;s also a bit weird to see a service &lt;i&gt;advertise&lt;/i&gt; their price discrimination. You are essentially saying &amp;quot;your country has a shit economy, so here&amp;#x27;s a discount&amp;quot; on the checkout page. And then are you also going to show the opposite – &amp;quot;you are in the USA so need to pay 50% more than average for this product&amp;quot;?</text></item></parent_chain><comment><author>t0mas88</author><text>The travel industry is very big on price discrimination (they call it revenue management). Car rental, hotels etc do it a lot, but the most advanced ones are the airlines.&lt;p&gt;For many flights there is no single price that would allow the airline to operate the flight without making a loss. Some example for a 100 seat plane:&lt;p&gt;1. Sell all tickets at $100: Plane 100% booked, revenue $ 10,000, which is less than the cost of flight.&lt;p&gt;2. Sell all tickets at $200: Plane only 60% booked, revenue $ 12,000, better but still less than the cost of the flight.&lt;p&gt;Reality: Sell 15 tickets at $400, then sell 60 at $200 and sell 20 at $100. Now you make $ 20,000 with a 95% booked plane.&lt;p&gt;Your new problem is how to avoid the $400 people buying a $100 ticket, because that ruins your whole optimization. The way airlines do that is to make many tariff classes with a lot of rules and a limit to the number of tickets sold at a certain class. They then change that a bit based on demand once the flights gets closer to departure.&lt;p&gt;The rules are relatively simple things (this was invented in the mainframe computing time and some of those systems are still around), common examples: A minimum amount of time before departure (e.g. you can&amp;#x27;t but the $100 ticket for a flight that&amp;#x27;s tomorrow), a minimum stay time (e.g. return flight has to be at least a week after arrival, filters out business travel), only valid if the trip includes a weekend-night (again filters business), only valid on a connecting flight etc.&lt;p&gt;The optimization is not a simple thing at all, I&amp;#x27;ve seen setups with large Spark&amp;#x2F;Hadoop clusters to calculate the optimal pricing for each tariff-class and the amount of tickets to allow on each flight for each tariff-class. Because that&amp;#x27;s the output of most revenue management systems. And then on the other side of things the flight booking sites or travel agents are trying to find the cheapest combination for each customer, because these tariffs are not &amp;quot;an SFO-JFK return&amp;quot; but more like &amp;quot;leg 1 SFO-ATL, leg 2 ATL-JFK, 5 days later leg 3 JFK-SFO&amp;quot; or something like that. And you can buy any combination you want as long as it fits the rules for each tariff class.</text></comment>
<story><title>Purchasing Power Parity: Fair pricing for SaaS products</title><url>https://scastiel.dev/implement-ppp-fair-pricing-for-your-product</url></story><parent_chain><item><author>inopinatus</author><text>Car rentals often show wide variation based on visitor origin. This was observed decades ago (I recall an economics professor mentioning it way back), and on a cursory check just now I was quoted up to 40% lower prices at an international airport, for an otherwise identical rental, by presenting as European* rather than American or Australian.&lt;p&gt;Such a difference cannot be explained by PPP or insurance factors. We might conjecture that consumer expectations account for the price discrimination, e.g. visitors from Europe may be accustomed to high quality integrated mass transit (including to&amp;#x2F;from the airport) and thus resent a high car rental price, whilst Australians and Americans assume they&amp;#x27;ll need a rental to get around, with consequently higher willingness to pay.&lt;p&gt;* tested with UK, France, Germany, Italy, and the Netherlands.</text></item><item><author>paxys</author><text>The economics term for this is Price Discrimination (&lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.investopedia.com&amp;#x2F;terms&amp;#x2F;p&amp;#x2F;price_discrimination.asp&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.investopedia.com&amp;#x2F;terms&amp;#x2F;p&amp;#x2F;price_discrimination.as...&lt;/a&gt;).&lt;p&gt;I don&amp;#x27;t want to go into fair or unfair as the author does (that is a very complex discussion), but it is definitely the most optimal way to price your product. The basic idea is – charge every customer the max they are willing to pay. As long as everyone is above the break-even point, you will maximize your profits.&lt;p&gt;This is definitely not a new idea (&amp;quot;emerged these past few months&amp;quot; as the author states). I remember people would pack their bags with boxes of Microsoft Windows and Office when coming back from foreign trips. Same goes for subscription pricing. That premium $20&amp;#x2F;mo Netflix plan costs $4 in Turkey.&lt;p&gt;It&amp;#x27;s also a bit weird to see a service &lt;i&gt;advertise&lt;/i&gt; their price discrimination. You are essentially saying &amp;quot;your country has a shit economy, so here&amp;#x27;s a discount&amp;quot; on the checkout page. And then are you also going to show the opposite – &amp;quot;you are in the USA so need to pay 50% more than average for this product&amp;quot;?</text></item></parent_chain><comment><author>chillfox</author><text>That sort of thing is everywhere, and has been a thing forever.
I remember when I was a teenager, my dad had a business importing consumer electronics from Asia and the difference in shipping cost between him paying the shipping company directly or getting a local agent to do it was often more than the cost of the products. It didn&amp;#x27;t matter if he used an established agent or some random person with zero connections, the price difference was due to him being European and had nothing to do with connections.</text></comment>