Business Manangement Examples

[costargh]

Yeah. That sort of policy encourages ALDI to sell their bread at the equally high price rather than the low price. It's a bit like the minimum wage. If you enforce a price floor, they will just sell less (just like employers hire less). Those who are poor and cannot afford the high price will not experience a competitive price, because ALDI will have to bundle the decision of lowering the price locally with lowering the price nationally - which will cause more costs than benefits for them.

Basically speaking, it doesn't produce efficiency because instead of being able to freely change the local prices to match local demand and supply, they have to make a trade-off between meeting demand and supply in location A and location B. The social responsibility sounds all nice and fairy-tale like, but the truth is that you will see ALDI being less competitive than they previously were in the competitive areas (with lots of supermarkets). Simply put, they will conclude that the costs of being competitive in one location far outweigh the loss in revenue all across the board.

Exactly. ALDI isn't going to lower their prices in a wealthy suburb to bring them into line with Cranbournes prices (no offence). Its like the biblical text in which some wealthy guy gives more money to the tax man than a poor woman does but what was important was the proportion of income in which they gave.

If ALDI had lower prices in Cranbourne it would show their sympathy for people doing it tough and therefore they would be seen to be socially responsible.

[jsimmo]

I'd disagree. I think it would be more socially responsible if ALDI supermarkets in low socio-economic areas were charged at a slightly discounted price. Wouldn't that show their social concern more than putting a "one size fits all" approach around their business?

Why would Aldi lower the price of a certain product to suit a low socio-economic area? Wouldn't the upper-class area be in disarray if their local Aldi was charging a higher price for a product that they could get cheaper in the next town? Personally, I would think that they are acting in the best interest of all customers in order to create that equal-opportunity in fair trade prices. "All consumers should be able to buy brand quality products at the same everyday low prices regardless of where they live" - wouldn't that be whether it be rich or poor?

[Collin Li]

They would do it because they might be able to maximise their revenue that way. In a poor area, the quantity demanded for a certain good may be particularly low for the overall market price (since they are poor), so they may decide to decrease prices there only, to maximise revenue.

[costargh]

I'd disagree. I think it would be more socially responsible if ALDI supermarkets in low socio-economic areas were charged at a slightly discounted price. Wouldn't that show their social concern more than putting a "one size fits all" approach around their business?

Why would Aldi lower the price of a certain product to suit a low socio-economic area? Wouldn't the upper-class area be in disarray if their local Aldi was charging a higher price for a product that they could get cheaper in the next town? Personally, I would think that they are acting in the best interest of all customers in order to create that equal-opportunity in fair trade prices. "All consumers should be able to buy brand quality products at the same everyday low prices regardless of where they live" - wouldn't that be whether it be rich or poor?

We are talking social responsibility. If ALDI wants to a shake off the tag of being "a money grabbing LSO" it would offer cheaper prices to people living in low socio-economic areas (By the way: According to a few studies this already happens. If you live in a richer area the price of your groceries is likely to be higher)

Coblin has already explained your thought regarding cheap prices for everyone.
If ALDI currently sold bread at $3 a loaf in Toorak and $2 a loaf in Cranbourne, would you reasonably expect for prices to drop in Toorak? It is far more likely that a situation would occur where prices were say $2.80 nationwide which would actually increase profits for the business. ALDI isn't going to lower its prices to people who can afford $3 a loaf for bread. Why would they appeal to society living in rich areas when their whole business is focused around supposedly cheap priced items? It is far more feasible that a scenario would arise such as I have mentioned above.

[Collin Li]

No, I was saying that if ALDI was competitively selling at $2 a loaf in Cranbourne, under the national pricing system, they would not be selling at $2 across the board. They would be selling at a price closer to $2.50 because otherwise they would lose a dollar of revenue from the Toorak people. That hurts the poor, because they don't experience competitive prices. Such a system also inhibits competition and hence, the efficiency of the market system.

Obviously, this doesn't happen because there would be a huge controversy if ALDI moved their prices up after this (but I wouldn't be surprised if such a bogus claim to "social responsibility" has made before). But what you have to consider is what if the national pricing system wasn't in effect? The prices could be so much more competitive, and they would ultimately help the poor. What I am saying is that so called "fair pricing" is not fair to the poor.

[costargh]

No, I was saying that if ALDI was competitively selling at $2 a loaf in Cranbourne, under the national pricing system, they would not be selling at $2 across the board. They would be selling at a price closer to $2.80 because otherwise they would lose a dollar of revenue from the Toorak people. That hurts the poor, because they don't experience competitive prices. Such a system inhibits competition and hence, the efficiency of the market system.

Thats what I said... =S *confused*

[Collin Li]

Okay. What you said sounded a bit strange to me, because I thought you were talking as if ALDI hadn't gone about the national pricing move (and wouldn't), but they have.

[jsimmo]

Do supermarket chains price product according to the socio-economic status of a particular area?

The pricing is much higher in outter-regional areas, Aldi's 'national pricing' would make it much cheaper for those specific areas.

[Collin Li]

Well, the reason why outer-regional areas have higher prices is because of transportation costs. National pricing just means that people living in other areas have to share the burden of paying for the transportation costs. This is because under national pricing, the price corresponding to maximum revenue is approximately the average of all the individual local prices.

This means that even poor places will further experience a lack of competitive prices due to higher costs of supply in rural places that are dragging the national price upwards.

[costargh]

The pricing is much higher in outter-regional areas, Aldi's 'national pricing' would make it much cheaper for those specific areas.

Your missing the point. Read Coblins or my post again.

I can see what your saying but why would you automatically presume that top end prices would decrease rather than bottom end prices increasing to "nationwide" equality?

[jsimmo]

Well, the reason why outer-regional areas have higher prices is because of transportation costs. National pricing just means that people living in other areas have to share the burden of paying for the transportation costs. This is because under national pricing, the price corresponding to maximum revenue is approximately the average of all the individual local prices.

My question was, 'Do supermarket chains price products according to the socio-economic status of a particular area?'

[Collin Li]

Well, the reason why outer-regional areas have higher prices is because of transportation costs. National pricing just means that people living in other areas have to share the burden of paying for the transportation costs. This is because under national pricing, the price corresponding to maximum revenue is approximately the average of all the individual local prices.

My question was, 'Do supermarket chains price products according to the socio-economic status of a particular area?'

They might, but usually only if it maximises revenue (they have shareholders to please!). I have explained in the earliest posts how this may maximise revenue.

[jsimmo]

Christopher Zinn, a spokesman for consumer magazine Choice welcomed the step by Aldi and said it would help save consumers money.

"We'd say that this is a terrific move and it gives transparency to pricing in regional areas and we're pretty sure there will be savings, even though Aldi is already substantially cheaper," Mr Zinn said.

Im confused, lol..
 
do you agree with what 'Mr Zinn' is saying?

[Collin Li]

No, I disagree with what Mr Zinn is saying. He believes national pricing is a terrific move. I believe it is just a hindrance to competition and efficiency. What's worse is that it could end up punishing the poor in that they will have to help contribute to the less competitive prices of ALDI - essentially subsidising the rich and the rural. I only see things this way because I see like an economist.

In terms of ALDI, the business, it may be a good decision. They sacrifice a small amount of revenue (by losing flexibility in pricing) for the "social responsibility" image, which may very well cause a positive effect on revenue - and possibly to avoid ACCC fines. The reason why they can manage to pull off the "social responsibility" image is because the adverse side-effects of them are quite hard to explain. The average uninformed (about economics, that is) reader would not understand it very well.

[brendan]

I really don't understand why everyone is getting worked up about this. Firms price discriminate more often than you think.

Examples:
- "Concession prices", "Discounts for seniors"
- product bundling: "throwing in a Free Kids passes to disneyland" in order to charge families less than other tourists who may have more cash to burn, charging higher prices for return flights on Saturday rather than sunday (i.e. trying to charge business passengers more than regular passengers)
Cash back offers (those who bother to fill out the forms will receive a lower price than those who didn't)

etc etc.