Opaque pricing is a pricing strategy where the product or service details are hidden until after the purchase has been made. The idea behind opaque pricing is that it allows sellers to move unsold inventory or fill unused capacity without openly advertising significant price reductions, which could potentially harm their brand image or lead to a price war with competitors.
This model is often used in the travel and hospitality industry. For example, websites like Priceline’s “Express Deals” or Hotwire’s “Hot Rate” hotels offer significant discounts on hotel rooms, but the exact hotel name and location are only revealed after the purchase is completed.
Consumers can choose the general location and quality level (e.g., the number of stars for a hotel), but they do not know exactly which provider they will be booking with until after they have committed to the purchase.
While this method can provide great deals for consumers who are flexible, it may not be suitable for those who need to know specific details before making a purchase. It’s also important to note that purchases made through opaque pricing are typically non-refundable.
Example of Opaque Pricing
Let’s consider an example from the travel industry:
Sarah is planning a weekend getaway and is flexible about her accommodation. She’s looking for a good deal on a hotel room in New York City, and doesn’t mind not knowing the exact hotel she’ll be staying at until after booking.
She decides to use an online travel agency offering opaque pricing. She specifies her desired location (Manhattan), the dates of her stay, and the star rating (4 stars) for the hotel. The website then displays a price that’s significantly lower than the typical rate for a 4-star hotel in Manhattan. However, the name and exact location of the hotel are not revealed.
Sarah decides to go ahead with the booking. She makes the non-refundable payment and only after this transaction is the name of the hotel disclosed. She finds out she will be staying at a reputable 4-star hotel in Manhattan, in a location that is convenient for her travel plans.
In this case, Sarah has benefited from the opaque pricing model because she got a substantial discount on her hotel room. Meanwhile, the hotel has managed to sell a room that might otherwise have remained unoccupied, without having to publicly advertise the discount and potentially affect its regular pricing or brand image.