The Pluses and Minuses of Predatory Pricing
My wife, Peggy, and I are hooked on watching the Philadelphia Eagles on television every week during football season. It's a fun few hours.
A very successful businessman I know has been a New York Giants season ticket holder for more than 35 years. Even though he moved to another city, he's hung onto his seats, giving them to family or selling them through his broker at a fat profit when he can't attend a game.
Recently my friend got a bill from the Giants for $40,000--a one-time payment for two "personal seat licenses" (PSLs), giving him the right to buy season tickets for those seats in perpetuity. The money is needed, claims management, to help finance the new $1.6 billion stadium, even though many fans are feeling more like bankers than ticket holders.
Is it smart business to screw somebody who's been a loyal customer for 35 years?
Believe it or not, in some cases the answer is yes.
Why People Buy
People will buy from you for four reasons:
1. Price. If you're the cheapest guy in town, you'll acquire customers.
2. Service. If you're a pleasure to do business with--greet customers by name, offer vast inventory, guarantee satisfaction, have a generous returns policy--people will buy from you.
3. Exclusivity. If you are the only guy in the area--airline, sports team, newspaper or gourmet restaurant with the best wine list--customers may grumble, but will patronize you.
4. Quality. Rolls-Royce, Rolex, Louis Vuitton, Hermès, Johnston & Murphy, Thomas Pink, L.L.Bean--all do well because their merchandise is beautifully made and will last a long time.
Up for discussion is No. 3: exclusivity. Quite simply, if you're a fan of the New York Giants--and you were rewarded by their upset 2008 Super Bowl championship--chances are you won't jump ship to the New York Jets, even though Brett Favre is the new quarterback and both teams will be playing in the same new stadium. The Jets also are demanding big bucks for PSLs.