The Diminishing Marginal Utility Of Draft Beer

Feb 10, 2016


Draft beer is highly perishable and offers diminishing marginal utility – a combination that makes discounting larger servings a profitable approach.


Draft beer is perfect for only a very short time. It is perishable in that it becomes less enjoyable (warmer and flatter) very quickly.

And, at least for most people, it offers diminishing marginal utility even if it remains in a perfect state.

So, if you sell draft beer, it makes sense to discount larger serving sizes. The discount encourages people to buy more than they might otherwise, generating additional (but smaller) profit. And because the product is so perishable the customer can't stockpile it – they can't buy extra at the discounted price and save it for later.

This prevents cannibalization – losing sales at full price.In fact somebody who really loves beer is likely to order more smaller portions, because it means they will generally be enjoying the beer in a more desirable state.



Category: Examples

Sponsored by FloristWare: Independent POS Without Compromise

Beyond Cost Plus is sponsored by FloristWare – powerful, affordable and easy-to-use point of sale software for florists. Independent POS does not have to be a compromise

FloristWare – flower shop software/POS system.

Related Material

Small Price Difference, Relatively Large Performance Difference

Different buyers mean different approaches, and price-sensitive customers need to be handled differently when pricing premium versions.

Diminishing Marginal Utility, Anchor Pricing & Attraction Tickets

The historic ships in Baltimore, open to tourists, recognize that they offer diminishing marginal utility and price accordingly.

Pricing For The Diminishing Marginal Utility Of BBQ

The menu from this BBQ restaurant shows they understand the diminishing marginal utility of their product and price to get customers to buy more anyway.

Pricing Attraction Tickets and Bundles

Attractions are a highly perishable product and operators are keen on revenue management – combining bundles and hurdles in an effort to maximize revenue.

Discounting Candy To Account For Diminishing Marginal Utility

Another example that illustrates how the intersection of perishability and diminishing marginal utility determines discounting.

Category List

Tag List

Tag Cloud