Ah, lunch at Fortnum & Mason in London — without doubt, the most posh place we ever have lunch at. By the time we get to dessert, we only have enough stomach room to split a piece of chocolate torte. But the cheese plate intrigues me — both for its culinary delights and its price structure. After over 300 years in existence, Fortnum probably has the pricing nearly perfect to maximize profits from cheese servings; so I assume that the lower marginal price for the 4th and 5th slices of cheese (£1.50 each), compared to the 1st through 3rd (£4 each) makes sense. Even a cheese addict (which I am) would be satisfied with 3 slices, so that at 4 or 5 slices for dessert the demand elasticity is probably quite low. The only way they’ll sell these is by cutting price a lot — probably still profit-increasing, given the quite low marginal cost of an extra helping of cheese. Thus demand-based price discrimination would dictate this non-linear pricing structure.
Pricing Fancy Cheese
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The prices on that menu look to be 2 for 8, 3 for 12, and 5 for 15, making the price per slice for the latter two sizes to both be 3 pounds and not 1.50 for the 5 set.
marginal price. 15 for five – 13 for three / 2 slices= 1.50
Is it obvious? It is natural for a larger group of diners to share a larger selection of cheeses, so it isn’t clear to me that the demand elasticity is low. Also, the menu refers to a “selection of five” cheeses (presumably different ones), not “5 slices [of the same cheese]” as Mr. Hamermesh writes/implies; the two are entirely different.
It also says there’s a lot of room in that cheese price. And since cheese is perishable, they have an incentive to move it reasonably fast.
Pretty much all restaurant products are perishable; depending on which cheese you’re talking about, it may well be one of the *less* perishable items on the menu.
I can also tell you some things about fancy cheese mark-ups (in the US). Wholesale to store retail is around 100%. Wholesale to restaurant cheese plate is easily upwards of 200%.
I’m guessing that if you want five, you get a little less of each cheese than if you order three.
Er, isn’t it pretty common for restaurants to reduce the marginal price for larger portions in order to get you to purchase more? “Oh, look, it’s only another three quid for two more slices, let’s do that.”
I think it has to do with the costs of the cheeses, which are not all equal. If you order the two cheese platter, you’re likely (or at least more likely than random) to order the two most expensive cheeses. The 5 cheese platter, on the other hand, has to contain cheaper cheeses as well, meaning that price may in fact = marginal cost. Also, the cost of preparing/serving the platter may enjoy economies of scale.
From what I’ve heard from restaurateurs, a restaurant will usually not worry about the (very few) customers who will deliberately order the most expensive items, and will price the cheese platter based on the average cost of the selection. Sure, you can game the system by doing your homework, but if your goal is to get a deal, why are you going to a place like Fortnum & Mason in the first place?
You really lost me with this post, because the smart consumer wouldn’t spend money on cheese like that. We get good quality cheese here in SF Bay Area at our local artisanal market. I can get a half pound of Brie for $1.50. So why would I pay for 8 pound miniscule slices of cheese in the first place?
actually, I think it’s about framing. The bias of the reasonable middle.