Very interesting topic and discussion guys.

My feeling would be that the bagel company sets “capacity” above the average demand for the day to start with – as they realise the bagels are an experience good, and they want to promote demand in the future.

Given this, the majority of the time they have bagel left over. If they gave discounts to everyone at the end of the day this would lower demand earlier in the day. By just giving the discount to students they are able to ensure that the lower demand only occurs for one, identifiable, sub-set of their client base.

I also agree with all the other explanations put forward, they all make sense. However, if I had to say how it rolls for me that is the explanation I would give 😛

Perhaps you need to reacquaint yourself with the seminal essay “I, Bagel.”

The way I have been thinking about it is that early in the day there is allways an opportunity cost to selling a bagel now, as you can sell it later. When you get to the end of the day opportunity cost effectively goes to zero since you can’t sell tomorrow.

You are definitely right that in some cases discounting later might reduce your demand in peak periods so it may not be worth while (implying the opportunity cost of selling at the end of the day is negative I think?), however I think the quality dimnesion is why that doesn’t happen for bagels.

Who would have thought that bagel pricing could be so complex?:)

1. As Robbie notes, advertising a “special” to students is more likely to fall on appreciative ears than advertising a discount to all users.

2. Students are less discerning than the average member of the public (publican?), so the sale of inferior products to students is less likely to damage the overall markets appreciation of bagels. To an ordinary member of the public, a bad bagel may put them off bagels altogether, even if it is discounted.

3. Having such a heavy discount to students can lead to a higher than normal level of demand due to the fear of missing out, FOMO. It breeds competition, where previously there may not have been any. So the student gains, not just by getting a discount, but by “getting the last available bagel of the day”.

4. Students of today are the workers of tomorrow, by getting them hooked on bagels young, the bakery is assuring themselves more consumers tomorrow. When students become workers their hours are likely to change so they will be consuming the premium bagels.

I think I disagree, it makes sense to clear out the bagels at the end of the day given you can’t sell them tomorrow.

The bit where we are struggeling to come up with an explanation for is the fact that it is limited to students.

Perhaps demand is discrete. Practically no-one will respond to a 1c discount, and as human beings we naturally think in terms of 10, 20, 30, 40, 50 per cent off, not 8% off or 27% off.

Given this, a 30% discount is needed to get sufficient demand (20 won’t do) and at this price they generate more demand than they can handle. Because of this, they limit the offer to a particular group.

This may also have the benefit of allowing them top advertise in the student magazines as being student friendly – it always sticks out a bit more to see a student discount rather than just a discount.