Home Opinion Rahul Bose, 5-star Marriott pricing banana the way it wants is simple...

Rahul Bose, 5-star Marriott pricing banana the way it wants is simple behavioural economics

Unless you believe prices should be fixed and want to enjoy the life of shortages it creates, there's nothing wrong with JW Marriott’s arguments.

Nitin Pai
Rahul Bose
Actor Rahul Bose | Twitter | @RahulBose1

Should a couple of bananas cost you Rs 375 (excluding GST) at a luxurious five-star hotel? Actor Rahul Bose certainly doesn’t think so, and a lot of people agree with him.

We tend to feel “overcharged” whenever we see a price tag higher than what we usually see at the usual place we buy from. So, we are indignant when we are charged Rs 375 for the bananas we would expect to pay Rs 10 for at the local supermarket. My price anchor is Rs 10 and I feel I am entitled to bananas at this price. My mother will almost surely tell me that I have been overcharged, because she would not pay her regular fruit vendor more than Rs 5. What we think is the ‘correct’ price is, therefore, relative.

Five-star’s banana defence

Now let’s look at the other side of the story. How would a five-star hotel explain charging such a big premium on the humble banana?

First, it must raise enough revenue to keep the business going and return profits to shareholders. Room rents are competitive and must be kept low enough to attract customers. This means it has to rely on other services — food & beverage, room service, spa, retail and so on — to make profits. In India, around 50 per cent of the revenue for five-star hotels comes from food & beverage.

Hotels can justifiably argue that room service, including bananas, are optional, and the guests don’t have to necessarily purchase them – unlike companies that make printers and razors, whose expensive consumables you have to purchase. And unlike multiplex cinemas, hotels do not prevent guests from bringing their own bananas, nor impose corkage (bunchage?) charges.

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Second, the hotel could contend that bananas served to you in the convenience of your room (or gym) constitute a different service, justifying the higher price. The cost of the banana could be itemised at Rs 10, and the cost of serving them on demand at Rs 365. It’s a fair argument.

Let’s say Rahul Bose earns Rs 5 lakh per month and works 16 hours a day. His hourly wage is around Rs 1,000. His opportunity cost of spending 30 minutes in going out and buying bananas from the grocery store would thus be more than what he was charged by the hotel. Even by these very conservative estimates, Bose actually got a good deal.

Third — the hotel won’t tell you this, but an economist will — is that there is price discrimination going on, and despite the negative connotation of the word, it’s not necessarily a bad thing. We need not begrudge hotels from making a profit by charging people who can pay more.

Finally, there’s caveat emptor, or buyer beware: customers ought to ask the price before ordering. If they think the bananas are too expensive, they could choose not to order them.

So, unless you believe that prices should be fixed and enjoy the life of shortages that it creates, there is nothing wrong with the hotel’s arguments. The price levels for the banana are reasonable given the other goods and services on offer. As Bose’s video shows, JW Marriott has provided chocolate cookies free of charge, but charged for the fruit. I’ve stayed at hotels where it was the opposite. Marketing departments have their reasons, even if they are unfathomable to the rest of us. Even if they don’t, it’s entirely their prerogative on what and how much to charge.

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Hotel’s business to be fair

Was the Marriott right to charge whatever it wanted for the bananas? Yes. Was it wise to do so? That’s a different question.

As behavioural economist Richard Thaler argues, it is in the firm’s long-term interests to appear “fair” even if this means forgoing some revenue opportunities. “The value of seeming fair,” he writes in Misbehaving, “should be especially high for firms that plan to be in business selling to the same customers for a long time, since those firms have more to lose from seeming to act unfairly.” It hurts a hotel, even a luxury hotel, to be seen as being greedy and opportunistic, or taking advantage of a customer’s situation. You could perhaps get away with such a reputation in a market where customers don’t have many choices. But in a competitive market, at the margin, you will lose business. Public outcry can also invite the unwelcome attention of government authorities and politicians.

Are bananas more like the bottle of drinking water in the room or the can of beer in the mini bar? Most people would consider the former to be a basic necessity while the latter is a discretionary item. To the extent that people think bananas are not a luxury, it makes sense not to price them as one.

Tailpiece: It is heart-warming to see the tax authorities act suo motu, and with great alacrity, to protect hapless citizens from being unduly taxed. Businesses, though, will have one more cause to worry. They knew they could be in trouble if they didn’t levy the appropriate GST rate. Now they know they can be in trouble if they levy GST on something that might be considered exempt. It complicates matters.

The author is the director of the Takshashila Institution, an independent centre for research and education in public policy. Views are personal. 

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  1. Does Rahul Bose and other actors charge minimum wage or a celebrity fee. Sabzi Mandi is min wage and Mariott is celebrity fee

  2. He didn’t buy the banana at the counter in hotel, it was served to him where he was , hence it involves product and service. If some claim, fruit shouldn’t be charged GST, the service performed is eligible for GST.

    He must have asked for the price before he ordered a item than complaining the price aftermath.

    As the article explains the hotel’s standpoint from the economist perspective, hotel may even charge more for these two bananas.

    I would ask him to take photo of his yearly income statement and tweet, so we would get chance to comment whether his pay is fair or exorbitant for what he performed on screen.

  3. Off course he is a celebrity and he earned lot I am agree with that view of cost and all for property like Marriott and multiplex like PVR and all but what makes sense if mention GST in the bill . however it’s hard for a celebrity to go to shopping market for purchase banana and have it during workout but if it’s served by hotel also I don’t think it’s a fair . Raw fruits and fruit platter there is difference scenario but if you have given raw fruits and charge fruit platter then it’s not fair anyway if der z not so much of option can avoid that .coz in room service side its not possible to give raw Fruits except fruit basket complimentary for guest . Either say no or can arrange personally by FO or make it complimentary . Make sense or can say raw Fruits we can not provide can arrange platter

  4. The price of a ten rupee item being charged three hundred sixty five rupees cannot be justified by any economic theory. Yes, there are overhead charges and at best it could go up to fifty rupees. The theory of comparing the pricing by a hotel with income and paying capacity or value of time of the boarder is ridiculous! Same with beverage. Those, especially alcoholic beverages, are priced at an astronomical rate! It’s not so in western countries. I have experience of ordering whiskey in a five star hotel in Hamburg long back (mid eighties). The peg which cost three West German Marks (the then currency) in pubs outside was served at seven Marks. The hoteliers definitely need profit but it should be reasonable. Sooner they realize it the better.

  5. There are 2 separate issues here

    1) the pricing of the fruit: As the author states, the hotel is free to charge whatever it wants. It didn’t make it compulsory for the actor to buy the bananas. He should have checked the price, and if he didn’t like the price, it’s simple…..don’t buy!

    2) the GST levied on the fruit: That’s illegal because as per the law, there’s no GST on fruits. The authorities have acted on the same.

  6. If you see the bill closely, you will find the charges were for a complete fruit platter not for 2 bananas. Surely, JW Marriot would have served him a platter, but their cashier box doesn’t know how to price for just 2bananas and they charged with what setup they had.

  7. Actually, the price wasn’t 375 for 2 bananas, as Rahul Bose as alleged.
    It was 375 for a “fruit platter”. A five star hotel is not a supermarket where a customer can go and say – give me 5 bananas, 2 apples , 1 kg mango or 3 kg paneer. They don’t have a “supermarket” offering or even an price list.
    Somehow he expects that the hotel should become a supermarket and decide the per piece item of each fruit and sell it to their customers on demand.

    He got served a room service menu item, Fruit Platter, when he asked for 2 bananas.
    The price would already be in the room service menu.
    Had he not just asked for 2 bananas, his Fruit Platter would probably be a lot more full than just the 2 bananas.

  8. I agree with the author that GST authorities taking up the issue of Marriott charging tax on exempt items is certainly heart warming. They should go through the past invoices and see how much has the hotel earned for this illegal act. They should then take examplary action against the hotel such that it never indulges in such illegal activities.

  9. Rahul Bose is a moron to raise this issue. Do you complain the same when you wear designer clothes? If you can’t afford it then pack your food and go to Marriott. The hotel across the street might give a room for Rs 500. Go and live there you dumbass.

  10. ‘Charge what the market will bear’ is the pricing policy of all sellers – from Pharma to FMCG to hotels. It was JW Marriott’s misfortune the guest was social media savvy had a smartphone and the time to broadcast a simple transaction that most others on expense accounts would have ignored. A sensible GM would have left a complimentary fruit platter and jacked up the rates in the service outlets – the restaurants, the gym, spa etc. Most hotels have a big jar of complimentary apples at the Reception even though few guests pick one up.

  11. There is something called fair pricing and taxation rules. Marriott learned it the hard way.

  12. J W Marriott can price its bananas or its caviar at whatever price it chooses to. Anyone who steps into a classy establishment knows everything costs more. Some time back there was a fuss over multiplexes in Bombay charging a lot more than the MRP for bottled water. MRP is relevant in a normal grocery store. 2. Sometimes a person with a million followers on Twitter expresses her grievance over a product or a service through a tweet. The appropriate course of action would be to take it up directly with the company.

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