Question

James owns both ski lodges, and therefore all of the skiing, in town. There are no other ways

to ski or ski lodges within 100 miles. Devise a way to segment the skiers in the town

into two markets, high willingness to pay and low willingness to pay, and find a way to

successfully charge them different prices. You need to describe how you will get the high

willingness to pay consumers to reveal their increased willingness to pay. You will also need to

describe how you will prevent consumer arbitrage between the high and low willingness to pay

consumers.

Answer 1

The best way to successfully charge different prices to customers with different levels of Willingness to pay is by having THREE different price levels.

Let the three prices hypothetically be: $ 100, $ 70 , $ 40

As Game Theory suggests, a person with low willingness to pay might just prefer $ 70 package as he might find the $ 40 package to be too inferior for himself. However, it is least likely that a person with low willingness to pay shall choose the most expensive package which is $100.

On the other hand, a customer with high williness to pay will most likely go for the highest package which is $100 as it is the experience, quality of products, fear of missing out on the best products that matter to him/ her, and thus, he/she will most likely choose $100 package.

This will lead to effectively differentiating between Low willingness to pay customers and high willingness to pay customers.

It should be noted that there should be progressive increase in benefits when one moves from a lower level package to a higher level package. For example- Giving 30 minutes, 45 minutes and 70 minutes time respectively for skiing to customers with different packages. Also, providing a personal trainer exclusively to the one with $ 100 package. Such benefits make customers choose higher packages.