![]() ![]() Regular riders will refill their cards often, and even if the amounts are not divisible by $2.75, leaving a couple dollars on the card is a very low percentage when spread over a bunch of rides. Although all MTA customers could lose or destroy cards with unused credit, the percentage lost is low for frequent riders, the core customers. It is not exactly non-core pricing, but it is an example of capitalizing on low price sensitivity. They could potentially increase prices by a greater amount on long-tail items with little or no risk of customer defection.Īt this point, you may wonder what this has to do with MTA metro cards. Similarly, companies that simply pass on their cost increases from year to year or increase prices by the same percentage on all categories miss an opportunity. Companies that take their cost and add a “fair” margin, have an easy time setting prices however, they would make more money by setting higher margins on non-core or long-tail items. Unfortunately, too many companies ignore this simple concept and set prices in a sub-optimal way. You will buy what you need, and not waste precious time on an inconsequential decision. What if you just need to buy some picture hooks, or some ¼ x 20 bolts? Are you really going to spend much time trying to save a few pennies on these? The answer is no. Similarly, if you are buying a power drill or a power washer, you will probably compare prices (even if you pick the most convenient store or your preferred brand). If you are buying paint, which might be $20 – $30 per gallon, you might compare prices at multiple stores. They sell them infrequently and each unit does not cost much and these items are part of the long tail. On the other hand, hardware stores also sell nuts, bolts, washers, picture hooks, etc. Those high-dollar and high-volume products will tend to be on the left side of the chart. They probably sell many fewer units of compressors, generators, gas grills, and the like, but the price for each is high, so sales dollars will be high. They are likely to sell high volumes of tools, paint, light bulbs, batteries, etc. The products with low sales are part of the long tail.Īs an example, consider a hardware store. See Exhibit 1 below, where the products on the left side have substantially greater sales than those on the right. If you create a pareto chart of your sales or your industry sales by product, you will usually see the vast majority of sales comprised of few products. This concept is sometimes referred to as long-tail pricing. Try to capture higher margins and higher price increases on the non-core items. So, when you are selling core and non-core items, price them differently. ![]() Conversely, customers are less sensitive to the prices on low-value, infrequently purchased (non-core) items. Customers are more sensitive to the prices and price changes of items they buy frequently, or on which they spend a lot of money. ![]() More importantly, it reminded me of the principles behind non-core pricing, or long-tail pricing. I agreed it is not customer-friendly, but I suspect it does improve the MTA’s financials. In his view, this practice is not very customer-friendly and is likely harmful to the business. In a recent conversation with my son, he observed that New York’s MTA charges $2.75 for each subway ride, but the options for card refills are generally not divisible by that amount. ![]()
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