Thursday, June 29, 2006

How the distribution of money affects consumer decisions

I'll just give two examples here:

Speed-dating agencies in the UK charge about £20 per person per evening, where an evening might be attended by around 30 people. To put on an evening of this kind, they need probably less than a handful of their own staff, plus an arrangement with the venue (which is probably easily arranged, since the customers will be buying drinks - the venue is typically a reasonably fashionable bar).

Takings of £600 for an evening clearly outstrip the costs by a wide margin, I imagine in the region of 50-200% margin depending on the exact circumstances. Why are we willing to pay that much? Would you want to attend a meeting whose stated purpose is finding a social and sexual partner knowing they had paid less than 20 quid?

Example number 2. People often pay a premium of up to 100% on the top food brand as opposed to the store brand or an unmarketed "brand". Why? Because the industry leader is rich enough to take measures that ensure the quality of the product and avoid a lawsuit brought by customer. An attempt to build an alternate brand if the first one is tarnished would be unlikely to succeed. A brand that has not spent money on advertising can more easily recover.

I'm sure there are more business opportunities that could be built around these general principles.

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