price discrimination segments customers by what they value most.
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accounting arc – student-led conversations
with harshita multani
center for accounting transformation
on accounting arc – student-led conversations, host harshita multani interviews ron baker—author, educator, and sought-after speaker—about price discrimination and the psychology behind everyday pricing. across coffee shops, hotels, streaming platforms, and movie theaters, baker says the same principle repeats: value is subjective, so pricing must be, too.
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baker argues that pricing “behaves like art” because people don’t act like predictable particles. the goal is not perfect prediction, but rather constant testing: offering options, observing behavior, and refining strategy. that framing aligns with a growing body of hospitality research that shows how subtle cues—like removing the “$” symbol—change spending patterns. cornell researchers find diners spend significantly more when menus list numerals without currency signs, a choice many premium venues intentionally make.
the discussion zeroes in on starbucks, long positioned as a “third place” between home and work. company leaders continue to invoke that community ideal. still, analysts note the surge in mobile ordering can turn stores into pickup depots, diluting the lingering, premium experience that supports higher prices. recent coverage highlights the challenge for leadership: balancing digital convenience with the in-store vibe.
baker’s broader point: price is part of a brand’s narrative. if the story breaks—say, lobster looks “too cheap” to be trustworthy—lower prices can reduce demand. conversely, luxury brands often avoid discounting because scarcity and status are integral to perceived value.
multani and baker also explore the decoy effect, where adding a clearly inferior third option nudges customers toward a target choice. it shows up in “good-better-best” menus, subscription tiers, and even the classic fast-food playbook: introduce an outsized option so a “double” feels virtuous by comparison. behavioral scientists document the effect; business writers have chronicled its fast-casual applications for years.
streaming services make the trade-off explicit: withstand ads (pay with time) or pay a premium to remove them. couponing works the same way; brands segment price-sensitive shoppers willing to “pay” with time to hunt discounts from those who prioritize speed.
the conversation catalogs common examples, including children’s and senior discounts, student rates, location-based pricing (such as a starbucks near a financial district versus a campus), hardcover first-runs that later drop to paperback, and the economics of movie-theater concessions. baker notes theaters keep ticket prices relatively accessible to fill fixed seats, then rely on snacks—strongly linked to the “movie” experience—for margin.
for accounting students, the episode offers two takeaways. first, don’t mistake cost for value; price should reflect outcomes the customer feels, not internal inputs. second, speak in narratives, not decimals. modern firms move away from hourly billing toward options that match client segments and perceived outcomes. in other words, pricing is less about the formula and more about framing. know the story your price is telling—or someone else’s story will tell on you.
7 key takeaways
- value is subjective; pricing should align with perceived outcomes, not internal costs.
- menu engineering and framing (e.g., removing dollar signs; using .95 endings) measurably change spending.
- starbucks’ premium “third place” narrative competes with mobile-order realities; operations influence perceived value.
- the decoy effect and tiered options (good-better-best) are ubiquitous and effective.
- price discrimination (based on students, seniors, coupons, and location) is common and often consumer-friendly when it matches the willingness to pay.
- for firms, moving beyond hourly billing requires testing options and telling a clear value story.
- for consumers, awareness of framing helps make more intentional decisions.