At first glance, offering different prices to people for the same product or service sounds like discrimination. In the business world, it goes by the name Optimized Pricing and happens all the time.
From borrowing money and purchasing insurance to booking a trip, Optimized Pricing is a growing trend. This practice basically consists of offering the price that a company believes a consumer is willing to pay. That’s why an airline ticket is likely to cost much more near Christmas; enough people are simply willing to pay higher prices to travel at that time of year.
While optimized pricing has been around in the travel industry for a long time, much of its growth is in the financial services industry. Perhaps that is being driven by the sub-prime mortgage crisis. Regardless of the reason, mortgages and home equity lines of credit are now commonly being priced in this way.
One way to combat Optimized Pricing is to comparison shop for items that are often priced this way. Rather than simply going with the first company you find or renewing existing services, check with other companies first. Finding a better deal doesn’t mean that you can’t use the first company. You can also use the other offers as leverage to negotiate lower costs from all providers. I played this back-and-forth game when shopping for a mortgage with great success.
Like so many aspects of personal finance, awareness of an issue like Optimized Pricing reduces much of its danger. Until every company uses this method, being aware of what a product or service should cost and shopping until you find that price can help you avoid overpaying due to Optimized Pricing.
Tuesday, May 27th, 2008 at 9:05 am