Friday, February 29, 2008

Pricing to Province: A Saab Example

For years I have taken advantage of the fact that Ontario's LCBO sells wine cheaper than the NSLC in Nova Scotia. Aside from this I have not found many other worthwhile arbitrage opportunities between provinces that I could take advantage of in my travels. That is, until now!

If you go to the Saab website and click on the ad on the main screen, you arrive at a map of Canada . Now most of us would just click our province of residence, but us economists pause, shake our head and say "why the hell do I need to choose a province?" And then we clue in: They are pricing to market in Canada. Amazing. As of today (29 Feb 2008), Saab (a GM company) is selling the same 2008 Saab 9-3 Sport Sedan (a nice car) for different prices across the country. Why are they doing this? Well, we know that each province has different economic conditions and access to the US market (where manufacturers' suggested retail prices or MSRPs are much lower). So, manufacturers can take advantage of this by pricing to market. By doing so, they can grab more consumer surplus . And yes, another way to think of this is: price discrimination.

How different?
In Nova Scotia, the cash purchase price is: $35,850. In Ontario, the same car costs $34,450, and in Alberta $37,450. The lease prices are also different. And for the other advertised models, such as the Saab 9-5 Sedan, some provinces have different prices. In the USA, the same Saab 9-3 Sport Sedan starts at $28,825. (Did you notice how the Saab Canada ads says "Your dollar goes further with Saab" - yeah right.)

Do other car companies do this? Not as far as I know; the rest have one MSRP for the country.

If you are thinking of buying the new Saab, you should print the Ontario price and take to your nearest dealership and demand a better deal. This is crazy. Or better yet, bring in the US price and ask "What the hell?".

Appendix: Walmart: A Master at Price Discrimination
We all know that Walmart has done this in Canada for years. From what I understand each Walmart tracks inventory in each story very closely: in fact, they record each sale and use the information to tell the store manager when to "roll-back-prices". They can plot the demand curve with this technology (O'boy I would love to see that data!), which means they can forecast how many pencils will sell in the next week if they drop the price by 10 cents. Wild.

3 comments:

Spudman said...

I'm not part of the target audience for a Saab so I'd not even thought about their pricing (other than to classify them in the "too much for me to pay" file). The rollback pricing at the local Wallymart does intrigue me.
I know how "they" get their data. How does anyone track how their rollback systeme works, though? Don't they frown on people wandering through the store for hours each day, noting variations and then telegraphing the stories to the outside world? Is this a potential career path for my children?

Matthew said...

Evil Walmart! Come on everyone let's push for unions in every grocery store in Canada!

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