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example if the family takes a long time to make decisions, or wants to wait until the easing of restrictions. The majority of funeral directors to whom we spoke do not charge for this extra storage time, even if it puts pressure on their capacity and requires them to seek other storage options (for example, embalmers can sometimes store bodies for funeral directors, for a fee). • Refunding funeral plans. Some funeral directors have had to refund customers for elements of funeral plans which they have been unable to provide, such as limousine travel, viewings or elaborate services. As described in this section, whilst in some cases not providing these aspects does represent a cost saving to the funeral director, in many cases they do not and the refunds are therefore direct out-of-pocket costs. The increasing proportion of simpler funerals may lead to a reduction in some costs among some funeral directors, such as the time spent arranging and coordinating the funeral, or the time spent driving to and conducting the funeral. However, this is by no means the case across the board, with a number of funeral directors reporting to us that the time required to arrange a funeral remotely has in fact increased. Where business models already use casual staff, then the wage bill might be reduced if these staff are not needed. However, many funeral directors rely predominately on full-time staff. Further, many of the costs incurred by funeral directors are largely fixed in the short- and medium-term, such as hearse and limousine fleets, properties, software, mortuaries and refrigerators. 1.2.3 Cost recovery and pricing The COVID-19 pandemic has highlighted a number of issues which are likely to affect firms’ cost recovery and pricing. These point to features of the market which until now may not have been fully accounted for in the CMA’s investigation, and which could have significant implications for the proposed remedies. The supply of different types of funerals at different prices – for example basic and standard funerals – can be seen as an example of Ramsey pricing, or price differentiation. Price differentiation, for example recovering a greater proportion of common costs through one service compared to another, can improve overall market Implications of the COVID-19 Pandemic for the Funeral Director Market and the CMA Investigation - 4 - efficiency by enabling firms to supply services at lower prices to under-served customers with lower willingness to pay, whilst still recovering common fixed costs. A greater proportion of the common costs are recovered from those customers to whom the service or product is most valuable (and thus who are willing to pay more). In the case of funerals, many firms appear to be recovering a greater portion of shared fixed costs from standard and more elaborate funerals compared to simpler / basic funerals. Particularly in the case of an essential service such as a funeral, ensuring that there are low-price products on offer is an important feature of the industry. With the significant increase in the proportion of simpler funerals being bought as a result of the pandemic, many firms may be struggling to cover their fixed costs without the revenues from the more expensive standard or luxury funerals. The firms to whom we have spoken report a fall in average revenues without a corresponding fall in costs. This suggests that many firms are engaging in price differentiation. One firm for example has had to increase the price of its simple funeral as it was unable to cover its costs given the fall in the sale of more elaborate funerals. The extent to which this is the case across the industry is as yet unknown, but it is a market feature which deserves full investigation by the CMA as it will have significant implications for any price regulation proposed. There is also evidence of price differentiation in the supply chain. We have received reports of coffin suppliers no longer offering discounts and/or increasing the prices of their more basic coffins in the face of lower sales of more elaborate coffins. The impact of the pandemic therefore could be that firms may need to reassess the balance of their pricing between basic funerals and standard / more elaborate ones, such that basic funerals recover a larger share of the common costs than they have previously done. Therefore, whilst average prices across all funerals could remain constant, prices of different types of funeral may need to change in order for firms to recover their costs and avoid operating at a loss. If firms are unable to increase their prices for certain funeral types, then this may lead to long-term losses and market exit. As an analogy, a cinema offering discounts for customers under eight years of age may be able to do so profitably as long as there are sufficient numbers of over-age customers; if all customers were below eight then that business model would no longer be viable. In addition, where firms have incurred higher costs as a result of the pandemic as described above, they should be able to recover these if they were efficiently incurred. This raises a dilemma. Increasing prices during the pandemic could be difficult from a social responsibility perspective. However, it is debatable as to whether price increases should or could be passed onto future customers once the pandemic has passed. New firms may enter certain market sectors in the future and undercut
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