Opaque pricing definition
/What is Opaque Pricing?
Opaque pricing is a technique used to hide the lower prices at which some merchandise is sold. It is targeted at those customers who are highly price sensitive, and so will only buy goods or services at lower price points. This approach is most common in the travel industry, where fixed costs on hotel rooms and plane seats are low enough to allow for substantial pricing discounts for those people willing to travel during dates well away from the peak season. These prices typically have restrictions associated with them, such as being unable to make changes to travel dates or being unable to obtain refunds.
Opaque pricing is designed to target specific market niches of price-sensitive customers, while leaving other niches alone. Thus, pricing deals are hidden from those customers who are not price sensitive. A good example is the business class seats on an airplane, for which prices are never discounted. The travelers using these seats want the comfort of business class seats, and are willing to pay for it.
Opaque pricing is not limited to the travel industry. For example, restaurants offer discounts to those over 65 years old, on the theory that retirees do not have the income to afford full pricing. Similarly, restaurants offer frequent buyer cards, which result in the occasional free meal in exchange for large volumes of purchases. The people most likely to take advantage of these deals are those who are price sensitive.
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Advantages of Opaque Pricing
Opaque pricing is beneficial for the seller, which books hotel rooms or airline seats during periods when demand levels are usually quite low, and also generates guaranteed revenue by doing so, since these deals cannot be refunded or changed.
Disadvantages of Opaque Pricing
Opaque pricing is designed to benefit the seller, to the disadvantage of the buyer. Therefore, this approach does not build brand loyalty with customers. Instead, given a choice between buying from a seller that uses opaque pricing and one that does not, most customers will avoid the seller that uses opaque pricing. This can result in a decline in lifetime revenues from individual customers, and an increase in customer turnover.