How Pricing Can Influence Behaviour

Last summer, I took my wife and four children to the Drive-In theatre near our home.

Below is a screenshot showing the prices of admission at this particular theatre:

Pop quiz: How much did I pay the Drive-in Theatre for my family's evening out?

(Spoiler alert: It's a trick question.)

You may have noticed the Family (2Adult 3-4 Kid - 1 Car) rate of $37 at the bottom of the chart and reasonably concluded that would have been the most appropriate option for us.

However, I noticed and exploited a pricing discrepancy: one car holding two adults and four children would cost $37, but two cars each holding one adult and two children would cost just $34, or three dollars less. (That's $3.39 when you factor in the Harmonized Sales Tax.) Despite what it may initially appear, the decision to take two cars to the theatre didn't make sense for me purely from a financial standpoint: the theatre is 12.1 km away from my home, and at gas prices what they were last summer, my second vehicle cost $0.16 per kilometre to drive. I may have saved $3.39 on the tickets, but it cost me an extra $3.96 to drive a second vehicle to the theatre and back.

But have you ever been to a drive-in with six people in a minivan?

It's almost impossible for everybody to stay in their seats and see the screen. On past drive-in movie outings, my family would solve this problem by parking with the trunk facing the screen, folding down all of the fold-down seats of the minivan and opening up the back door; the adults would sit in lawn chairs outside of the vehicle and the four kids would lie down in the back of the vehicle with sleeping bags.

When I noticed this pricing discrepancy, though, I realized a more comfortable seating option existed: two cars meant four premium-view front seats. And a child sitting in the middle of the backseat would have an unobstructed view of the screen. That's a win for us!

But was it a win for the Drive-In?

Probably not: at a Drive-in theatre, the number of parking spaces available in front of each screen is finite, so it's not in the theatre's best interest to have movie-goers use two car spaces for $3 less than they would generally pay for one.

Pricing decisions aren't always straightforward, but a business must get its pricing right to maximize the revenue it can earn. If the price is too high, people may not buy. If the price is too low, the business will earn less than what it could have otherwise earned.

But there's another reason to think about the price you should charge, as I hope my Drive-in example illustrates: the price you charge can influence your customer's behaviour.

In this case, think about what would happen if the Drive-In decided to charge a price per vehicle and then an additional price per occupant within it.

Under the current scenario, a single ticket (1 Adult, 1 Car) is $14. That price is probably set to be equivalent to what that same adult would pay for a single ticket at an indoor movie theatre, but the fact that the Drive-In offers two movies for a single cost justifies a premium.

So let's say the theatre charged a vehicle cost of $15, and then an additional charge for each person within the vehicle: $6 per adult and $3 per child.*

The resulting pricing structure would look like this:

Under this new pricing scheme, my family of six would pay a slightly increased cost of $39 using the Family (2Adult 3-4 Kid - 1 Car) option (i.e. $15+$6+$6+$3+$3+$3+$3).

But if we took two cars, we'd end up paying $66: ($15+$6+$3+$3) + ($15+$6+$3+$3).

Under this new pricing scheme, there would be a strong disincentive for me to take a second vehicle.

And that's the point.

Your pricing isn't just used to maximize your revenue, it can also be used to nudge your consumers into changing their behaviour.

Think about that the next time you're ready to change what you charge.