Opaque pricing is a system that allows companies to sell their goods or services at hidden, lower prices. It’s a form of price discrimination aimed at price-conscious consumers who prioritize cost over the company’s brand, amenities, or reputation.
How Opaque Pricing Works
The opaque pricing strategy is widely used in the travel industry. Certain websites offer this pricing technique by listing unsold hotel rooms, airline tickets, and car rentals at hidden rates. When customers select their destination, dates, and preferences (such as hotel star ratings), they make a payment before the vendor reveals the name of the hotel or airline. This format typically prohibits refunds, changes, or cancellations.
Hotels use opaque pricing to move rooms that would otherwise remain empty without undermining their brand. Once booked, these reservations provide guaranteed revenue, given that they cannot be modified.
Benefits of Opaque Pricing
While sellers ideally aim to charge consumers the highest price they are willing to pay, the exact amount a buyer is prepared to spend is unknown. Buyers have little incentive to share this information. Hence, sellers resort to segmented pricing to capture different consumer segments banking on their willingness to pay.
For example, airlines offer first-class seats at significantly higher rates. Customers pay for extra space and prestige, while the airline increases revenue enormously—often charging up to ten times more for essentially the same flight service.
Key Takeaways
- Opaque pricing allows businesses to offer products or services at hidden, lower costs.
- The strategy mainly targets price-sensitive customers, making it popular in the travel industry.
- Techniques include bundling and discounts based on age, purchase channels, volume, and geography.
Types of Opaque Pricing
Different methods of opaque pricing extend beyond travel uses, including:
- Age-based discounts: Example — Movie tickets priced lower for children and older citizens.
- Channel-based discounts: Example — Reduced costs for online purchases compared to in-store buys.
- Volume discounts: Example — Frequent flyer programs offering price reductions for loyal customers.
- Geography-based pricing: Example — Varied pricing for enterprise software based on location.
Special Considerations
Even when products are listed at opaque rates, sellers usually have leftover inventory—like unbooked flight seats. Since the marginal cost of such inventory is often low, selling it at discounted prices can still be profitable. Bundling hotel rooms within vacation packages minimizes self-cannibalization of higher-revenue opportunities.
Related Terms: price discrimination, volume discounts, geographical pricing, market cannibalization.
