Discriminating Business Sense

Club owner increases revenue by charging customers according to their demand elasticity.

Several years ago, I used to earn extra money bar tending in a dance club that my uncle owned near downtown Detroit, which opened its doors at 6:00 p.m. There was a cover charge at the club, but not for every customer. The price of drinks was also different for different customers. In fact, the fee structure was quite complicated:

• No cover charge for men dressed in business suits that came in just after office hours.
• No cover charge for the first 100 ladies entering from 6:00 p.m. until 9:00 p.m. Also, during these hours, drinks to all the ladies were sold at 1/2 price.
• Cover charge and full drink price for every customer after 9:00 p.m.

In effect, my uncle effectively employed price discrimination. As he explained to me, his best paying customers were men who were looking to meet women. To ensure that the women would be available, he attracted them with discounts. Some men would be willing to pay a cover charge to enter his club, while others wouldn't. He had an effective technique of identifying men who wouldn't be willing to pay the cover charge (those wearing business suits who could just as easily go to a regular bar or a restaurant to wind down after work) and those who would pay (men casually dressed wanting to meet women). He also identified the women who would be willing to pay a cover charge, and those who would not, by allowing the first 100 women free admittance. My uncle never offered a 1/2-price discount on drinks to men because he effectively identified the men as those customers who were willing to pay full price for drinks. Ultimately, my uncle identified the customers with the more elastic demand for drinks and admittance and then offered them a price discount.