How price discrimination works

At its core, price discrimination is a sensible pricing strategy that provides added value to both, the organization using it and its customers. Its logic is simple. Different consumer groups pay different prices based on their economic valuation of the product. This approach is used in virtually every industry and is very effective. Here are some examples of price discrimination:

  • In many restaurants, happy hour prices are lower before 6 pm to entice patrons to come in before the dinner rush. During this time, business is slow otherwise. In exchange, price-sensitive diners eat and drink at a substantial discount, and leave before the prime dinner hours. Win-win for the restaurant and for frugal gourmets/ imbibers!
Musicals by Ludovic Bertron Flickr Licensed Under CC BY 2.0.jpg
Source: Musicals by Ludovic Bertron Flickr Licensed Under CC BY 2.0.jpg
  • In New York City, Broadway show tickets can be purchased on the same day from TKTS Discount Booths for 20-50% off regular prices. The show organizers fill theaters to capacity, earning incremental revenue that goes straight to their bottom-line. Thrifty tourists get last minute deals but face the risk of not knowing which show they will see or where they will sit. And they may miss out on a popular, sold-out show.
  • Shoppers can buy new books that have just been published in hardcover for a high price, or wait several months (or commonly, a year) and buy the paperback at a much lower price. (This strategy is known as “windowing” and is also used by the film industry).

The common thread running through these examples is that consumers have the choice of buying the product version they want. They can either buy the higher-priced, higher-value version or the lower-priced, lower-value version.

Even in the case of airlines which confer “premium” status to their frequent-fliers or expensive-ticket buyers, every flyer has the personal choice to reach that status by performing pre-specified actions. The discrimination is based purely on customer valuation. (There are some exceptions to this such as student discounts and senior citizen discounts. These, too, are based on economic valuation differences. It just so happens that the student or senior citizen status coincides with the different economic valuation).

Taj Mahal’s dual ticket pricing strategy

Taj Mahal by vil.sandi Flickr Licensed Under CC BY 2.0
Source: Taj Mahal by vil.sandi Flickr Licensed Under CC BY 2.0

India’s Taj Mahal is a UNESCO world heritage site, one of the Seven Wonders of the World, and a must-visit location for virtually every tourist, national and international. A visit is a truly spectacular experience! But unfortunately, it also employs a highly questionable and dispiriting “dual” pricing strategy, with the potential to sour the experience of Indian and non-Indian tourists alike.

In essence, dual pricing for Taj Mahal entrance tickets works as follows:  Foreign tourists pay one thousand rupees (approximately $15), citizens of neighboring SAARC countries pay 530 rupees (approx. $8) and Indian citizens pay 40 rupees ($.70).  

After they enter the monument, foreign tourists are called “High Value Ticket Holders”. In exchange for the 25X price they have paid, they get a free bottle of water and a shoe cover. Most importantly, they get expedited entrance to the mausoleum and its various exhibits.

The Indian tourist’s experience is starkly different, and rather wretched by comparison, as explained by journalist Osama Salman:

“This is how an Indian enters the Taj Mahal compound: Buys ticket after standing in a non-existent queue for at least 10 minutes, buys water after paying Rs. 20 from shops near the entrance, haggles for shoe cover price, after a few minutes of back-and-forth argument pays Rs. 10 for the shoe cover (or does not buy at all ), stands in line to go through security check for at least 30 mins — not counting the Sunday rush, shows ID card at security check, goes through security check, and (finally) walks in.”

(He didn't mention that they have to pay two rupees extra if they want to relieve themselves after they enter; foreign tourists incur no further expenditure).

Here’s why Taj Mahal’s dual pricing strategy is misguided

Taj Mahal’s dual ticket pricing strategy is misguided because it takes and uses the concept of discrimination literally in the most offensive, pejorative sense of the word.

It discriminates between people based on who they are rather than based on their economic valuation of a visit to the Taj Mahal. It gives no choice to consumers, which forms the cornerstone of legitimate discriminatory pricing strategies.

This Way by Ian Brown Flickr Licensed Under CC BY 2.0.jpg
Source: This Way by Ian Brown Flickr Licensed Under CC BY 2.0.jpg

Thus, an Indian tourist who may be willing to pay more still gets treated as a second-class “ordinary” person in his or her own country and has to suffer through a torturous experience. (It is not clear whether Indians can buy the expensive “foreign tourist” ticket. The implicit message on the ticket window suggests the answer is “no”). Not only are they nickel-and-dimed for water, shoe covers, etc. but they have to stand in longer lines throughout their visit. To add insult to injury, they even pay a fee to use the facilities. The sense of being second-class tourists imbues their entire experience.

In contrast, every foreign tourist is required to pay the high price whether he or she wants to, and can afford to, or not. For instance, student travelers from around the world who may be traveling on a tight budget still have to pony up and embrace the “privileged” experience even if leads to skipped meals and shelter-less nights afterwards, or even having to forgo seeing the Taj Mahal altogether. Clearly, few tourists are happy at being discriminated against in this way.

A very expensive leak by Thommen; Used with Permission
Source: A very expensive leak by Thommen; Used with Permission

Another problem with dual pricing arises from the sheer subjectivity involved in deciding who is a foreign tourist and who is not. It increases the potential for corruption in an already corrupt country. Where foreign tourists of a different race or skin color (Caucasian, African, Asian, etc.) are concerned, the rule is clear-cut and easy to apply. But for members of the Indian diaspora who may be citizens of another country, it doesn’t work well at all. They may be able to sneak in at the lower rate, as long as they keep their mouths shut and their accents undetected. Or if they slip a few rupees as a bribe to a security person.

And what about mixed parties, where some people are Indian citizens and the rest are non-Indian citizens?  

Finally, there is no reasonable justification provided for dual pricing. One explanation is that foreigners need greater security (and it costs more to provide it). Another explanation is that tickets for comparable landmarks are far higher in other countries they are in India, so foreigners are accustomed to paying these prices. Neither of these explanations makes much sense.

The fact is that most comparable national sites like the Louvre Museum in Paris, the Acropolis in Greece, or the Great Wall of China (or any monument in the United States, for that matter) do not use dual pricing for entrance fees. Every human being, regardless of the country of origin pays the same entrance price to visit them. However, there are exceptions to this. Malaysia’s Petronas Tower uses discriminatory price. But in its case, Malaysian citizens get a straight-up discount. They are not subjected to a humiliating, second-class experience in their own country as Indians are.

Taj Mahal’s dual ticket pricing strategy is not price discrimination, it’s just plain discrimination. And it’s a black eye on a country that wants to be seen as an “Incredible” tourist destination.

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