Product sabotage

October 9th, 2006

Starbucks don’t display their cheapest coffee on their menus, and yet according to coffee aficionados it’s the best coffee they do (It’s smaller, and so stronger with a better crema). Why is this?

Supermarkets make their own brand ‘budget’ range packaging look like Red Cross aid; and it’s not because they can’t afford attractive packaging even for the cheapest products. Why?

Economists call this ‘Product sabotage’ - Companies downplay or hide their cheaper products to up-sell to the larger, more expensive, more profitable items. They can’t not offer the cheaper products, because they would lose a section of their market - but they sure do want to make sure that those who can afford to pay more, do.

It’s far more common than you think, too.

• Airport waiting lounges are barren, soulless places which are not fun to spend hours in when your flight is delayed. The airlines could easily afford to make them nicer, and therefore increase customer satisfaction, but then sales of passes to the ‘VIP lounge’ would decrease.
• Discounts for students and pensioners are not offered because of the charitable nature of the business owner - they’re made so that the normal customer can be charged more, because they can afford more.
• Offers for free kids meals / free kids places on holidays are so that companies can charge more to the generally better off childless couples.
• Hi-tech companies will often release a reduced function version of their products at a reduced price. The difference? It has a chip in it to impair it or slow it down. It’s cheaper to do this than to design a whole new, inferior product.

Companies sometimes make the cheaper offering look less desirable (take the example of supermarket budget brands) so that they force the customer to make the decision - are they budget conscious or lavish? People will often buy the more expensive option because it makes them feel more discerning.

Is this the best way to do business? I think it’s become acceptable really, even though it seems really sneaky and unethical. If these companies were forced to stop offering this tiered pricing structure, you can guess which offer would be scrapped.

Does your business ’sabotage’ it’s product to ensure the best profit from each customer? I know that zoomzoom Online Marketing doesn’t - our pricing is transparent and across the board - but I wonder if that has cost us business from small companies who can’t afford much, but desperately need a presence online? Perhaps instead of doing some clients an injustice by charging others less, alternatives such as revenue sharing can be discussed so that both sides can benefit.