Customers who download the Starbucks app and sign up to become a rewards member get the opportunity to purchase beverages at a lower cost. This is an example of which kind of price discrimination?

Question

BlackTom AI · Accepted Answer

To unpack the scenario, we start by identifying what price discrimination technique is at play when a customer who downloads the Starbucks app and joins as a rewards member can purchase beverages at a lower cost.
Option: Hurdle method. This approach involves offering a lower price contingent on the consumer completing a precondition or hurdle, such as signing up for a rewards program or meeting a participation requirement. In this case, the hurdle is enrollment in the rewards program, which grants access to a discounted price for beverages.
Option: Bundling. Bundling would mean selling a set of products together at a single price, rather than offering a discount tied to a sign-up or action. The scenario does not mention pairing drinks with other items as a bundle, so bundling isn’t the correct mechanism here.
Option: Dynamic pricing. Dynamic pricing refers to adjusting prices in real time based on demand, season, time, or other factors. The described discount is a fixed discount tied to rewards membership rather than a fluctuation driven by demand, so dynamic pricing doesn’t fit.
Option: Market segmentation. Market segmentation involves charging different prices to different groups (e.g., students, seniors) based on characteristics, but the key feature in this example is the prerequisite sign-up leading to a lower price, not simply charging a different price to a defined group. While there is a group (members), the essential mechanism is the hurdle of joining the program, which aligns best with the hurdle method.
Putting it together, the core idea is that the price reduction is contingent on the consumer completing the signup hurdle inherent to the rewards program, which matches the hurdle method of price discrimination. Thus, among the choices presented, the hurdle method best explains the scenario.

QAMO 2010-002 Spring 2025 Unit 5: Profit Maximization with Market Power Part 2 -- Short Problems

Customers who download the Starbucks app and sign up to become a rewards member get the opportunity to purchase beverages at a lower cost. This is an example of which kind of price discrimination?

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