| John Spacey, January 10, 2016 updated on January 14, 2023
Price discrimination is any pricing strategy that charges different customers different prices in the interests of improving revenue. It is typically designed to charge customers that are less price sensitive a higher price. The following are examples of common price discrimination strategies.
CouponsPlacing coupons on your website or in advertising is a time tested way to implement multi-tiered pricing. Price sensitive customers are typically more willing to find and use coupons.
Direct Segmentation Segmenting your customers directly by charging more to corporate customers than individuals. Also applies to different prices based on age, gender, city and other factors. For example, a bar may offer a ladies night or a restaurant may offer a seniors discount. Direct segmentation can lead to a customer backlash if implemented in a way that offends people. In some cases, direct segmentation by factors such as gender may be prohibited by law.
First Degree Price Discrimination Aggressive price discrimination that directly targets a customer's ability to pay more such as the size and revenue of a corporation. Customers tend to dislike these schemes and it typically requires a strong market position to implement. Monopolies are particularly prone to implement first degree price discrimination if left unregulated.
Incentive Discounts Offering a lower price to sales partners who can achieve certain sales targets. A common example is discount travel packages that may work out special prices with airlines and hotels based on volume. Airlines and hotels benefit because price insensitive customers such as business travelers rarely use discount travel packages due to the restrictions they impose.
Indirect Segmentation Segmenting customers by indirect factors such as behavior. For example, an airline may offer lower fares for a Saturday night stay to filter out business travelers from vacationers who are far more price sensitive.
Loyalty Pricing Charging a different set of prices to loyalty card members or other categories of loyal customers. In some cases, this is a higher price that is compensated with rewards, status and special treatment. In other cases, loyal customers receive discounts.
Personalized Pricing Offering different prices based on factors such as account behavior. For example, if a customer hasn't made a purchase for a long period of time they may be offered a particularly good price to bring them back.
Premium Product Versions Offering a premium version of similar products is a common way to earn more from price insensitive customers.
Sliding Scale Fees It is common for lawyers, schools and community service organizations to openly charge based on ability to pay. This is typically acceptable to customers if you're doing something good for the community by offering lower prices to make important services more accessible.
Time Based Pricing Offering discounts on a particular day or time of day to target price sensitive customers.
|Definition||A pricing strategy that charges different prices to different customers.|
|Value||Improving revenue by charging price insensitive customers more.|
|Risks||Price discrimination strategies that are perceived as unfair risk a customer backlash that can result in a loss of reputation and brand value. Many jurisdictions have competition laws that regulate pricing practices such as the Robinson–Patman Act in the United States.Generally speaking, it is a good practice to offer the same policies and prices to all customers at a point in time. Techniques such as coupons can implement price discrimination in a way that is perceived as fair and equitable. |
|Related Concepts||Pricing StrategyPrice Sensitivity|
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