Common price-discrimination tactics and warped consumer psychology in China

This is not a post about gaming. I wanted to jot down some observations about daily life in China, starting from the topic of pricing related to restaurants.

Let me describe a typical flow at a casual restaurant:

• You seat yourself;
• You scan the menu QR code (often in Wechat, but could also be other mega apps), and you can start browsing and ordering;
• Confusingly, there’s often also a QR code for Meituan/Dianping, advertising special discount offers (e.g. a special set menu for 2, or a work-day only lunch-set). If you purchase one of these offers, you will need to call over a waiter to manually redeem the offer (How? They scan a QR code on your phone, of course.)¹
• Depending on the restaurant, when you submit the order, sometimes you will need to pay immediately via Wechat or Alipay. This is often a point of buyer’s remorse, because after you’ve already spent your hard-earned cash, you then realize there’s “90 for 100” (pay 90 RMB to get a 100 RMB voucher) deal for this venue on Meituan.²

The savvy Chinese consumer is thus taught to not make any impulse decisions, and instead browse the restaurant menu, check the Meituan deals, and after exhausting the research, then decide on a plan of attack. It’s orders of magnitude more complex than going to a restaurant in most other countries.

This is not limited to Chinese-style restaurants – KFC in China also seems to take delight in overwhelming consumers with choices and lots of pricing complexity. Take the below app screenshot I just took: there’s currently a 13-piece party-combo, that requires you to choose 8 food options (it mixes burgers and side options, and limits you to no more than 6 burgers out of the 8 choices) and 5 drinks, and starts at 89 RMB (~$12, if you picked the cheapest options). At the same time, there’s a 10-piece (starts-at) 79 RMB combo, a 7-piece (starts-at) 69 RMB combo; and those are just the options in the first tab of the app…

Why do retailers do this? I speculate that it’s at least partly driven by pricing discrimination needs. Consumers insensitive to price (or just in a hurry, or lack the patience for research) will pay full price; bargain-hunting shoppers may get lured into buying more than they need.

More generally, there are myriad data-driven price discrimination tactics in China – Chinese people call this 大数据杀熟 (big-data price discrimination, but more literally, big-data killing old customers). For example, people talk about the sudden price hikes on an item (e.g. flight tickets on a trip you’re planning) that you’ve browsed several times – giving new meaning to “special price, only for you my friend”. What I’ve personally encountered recently is Luckin Coffee’s weekly 9.9 RMB voucher excluding the item I’ve always ordered (a plain ice latte, if you are curious – for that, I can now get it for 12.9 RMB thanks to a different type of discount). This is similar, but more sophisticated, than the introductory offers (e.g. first month subscription at a discounted price) in the west.

The cost of these tactics is warped consumer psychology, that I think may have a net decrease in total spending. Chinese consumers are trained to bargain hunt, to look out for gotchas, to become experts at complex pricing schemes. They become skeptical when it’s just a simple price tag, with no fine print. I do think this extends to online virtual goods.

There are counter trends to this, but so far their share of voice seems low. Take hairdressers, for example, for years the dominant pricing strategy has been volume discounts on membership cards³, but consumers have become increasingly frustrated with this model (risk of losses due to fraud or bankruptcy of the retailer), so now some hairdressers advertise their “no membership cards” pricing. Similarly, I’ve come across one restaurant where, next to the menu QR code, was a simple sign that said “we don’t do deals on any other platforms, just order away”.