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    Price Segmentation - Introduction (And ID For Discount)

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    Eleazer Ego-ogan
    Price segmentation involves charging different prices to different customer groups for the same product. It is a powerful pricing tool that most companies should consider. There are two main steps to implement price segmentation: 1) segment the market into groups willing to pay more or less, such as "rich" and "poor" customers, and 2) create a pricing mechanism to charge the different groups different prices without explicitly labeling them. A common example is student discounts at movie theaters, where students show an ID to receive a lower "student price." Price segmentation allows companies to optimize revenues and profits by capturing business from various customer segments.

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    Price Segmentation - Introduction (And ID For Discount)

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    Eleazer Ego-ogan
    118 views3 pages
    Price segmentation involves charging different prices to different customer groups for the same product. It is a powerful pricing tool that most companies should consider. There are two main steps to implement price segmentation: 1) segment the market into groups willing to pay more or less, such as "rich" and "poor" customers, and 2) create a pricing mechanism to charge the different groups different prices without explicitly labeling them. A common example is student discounts at movie theaters, where students show an ID to receive a lower "student price." Price segmentation allows companies to optimize revenues and profits by capturing business from various customer segments.

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    Pricing Approaches

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    Price segmentation involves charging different prices to different customer groups for the same product. It is a powerful pricing tool that most companies should consider. There are two main steps to implement price segmentation: 1) segment the market into groups willing to pay more or less, such as "rich" and "poor" customers, and 2) create a pricing mechanism to charge the different groups different prices without explicitly labeling them. A common example is student discounts at movie theaters, where students show an ID to receive a lower "student price." Price segmentation allows companies to optimize revenues and profits by capturing business from various customer segments.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    118 views3 pages

    Price Segmentation - Introduction (And ID For Discount)

    Uploaded by

    Eleazer Ego-ogan
    Price segmentation involves charging different prices to different customer groups for the same product. It is a powerful pricing tool that most companies should consider. There are two main steps to implement price segmentation: 1) segment the market into groups willing to pay more or less, such as "rich" and "poor" customers, and 2) create a pricing mechanism to charge the different groups different prices without explicitly labeling them. A common example is student discounts at movie theaters, where students show an ID to receive a lower "student price." Price segmentation allows companies to optimize revenues and profits by capturing business from various customer segments.

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    © All Rights Reserved
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    Price Segmentation Introduction (and ID

    for discount)
    Price segmentation is THE MOST POWERFUL TOOL you have at your pricing
    toolbox. Every company, big or small, must be thinking about price segmentation.
    What is it? Price segmentation is simply charging different prices to different people
    for the same or similar product or service. You see examples every time you go
    shopping: student prices at movie theaters, senior prices for coffee at McDonalds,
    people who use coupons and many more. The industry that probably does price
    segmentation better than any other is airlines. It seems that no two people on a plane
    payed the same price.
    Whether youre a retailer, restaurant, software company or building physical products,
    price segmentation applies to you.
    The academic literature (sorry for saying that word) describes many characteristics
    and requirements for price segmentation, but in reality, there are only 2 steps to
    implement it: 1. segment the market and 2. create a mechanism to charge them
    different prices.
    1. Segment the market The first requirement is to find groups of customers, some
    that are willing to pay more than others. To keep this simple, lets hold it to 2
    segments, those willing to pay more and those willing to pay less. Lets call them the
    rich and the poor. This is a pretty common segmentation anyway. In general poor
    people are more willing to invest time, energy and effort to get low prices, while rich
    people are more likely to just buy what they want.
    2. Create a pricing mechanism This is much harder than it seems. You cant simply
    put up a sign in your store that says Rich people $10; Poor people $5. Nobody
    would ever confess to being rich. You need a way to get the rich people to voluntarily
    pay the higher price.
    The best way to learn price segmentation is to go through examples. Lets look at
    students at the movie theater. The movie industry has determined that most of us
    (non-students) are the rich, and students are the poor. This may not be perfectly
    true, but in general it would be fair to say that students who dont have full-time jobs
    are less well off than those of us that work for a living. However, the movie industry
    still wants them to come to the theaters so they want to charge them less. The way
    they do this is to offer a discount to students, and in order to get the discount, you

    have to show a student ID. That way most of us pay the normal price and students get
    a lower price.
    Lets broaden this a little. Showing a student ID to get a discount at the theater is an
    example of a broader type of price segmentation: ID for discount. This is used in
    other ways as well, like when seniors show an ID for a discount.
    Action: How can you ask for an ID to give a discount? Will seniors or students pay
    less for your product service? If no, begin thinking of other price segmentation
    methods you may be able to use.
    In the next several blogs we will look at more examples of price segmentation in
    action.
    Segmentation in marketing means dividing up a large target audience into smaller groups for
    efficient marketing and promotions. Product segmentation is a common approach in which you
    divide customers into groups based on potential use and interest in your products. Price
    segmentation is an alternative technique in which you segment customers based on price to
    optimize revenue and profits.

    segmented pricing
    Definition
    A situation that occurs when a company sets more than oneprice for a product without
    experiencing significantdifferences in the costs of producing or distributing the product.
    For example, a segmented pricing structure might be used by a business to
    take advantage of pricing disparities observed between different geographical regions.
    Time-based pricing is a pricing strategy where the provider of a service or supplier of a commodity,
    may vary the price depending on the time-of-day when the service is provided or the commodity is
    delivered. The rational background of time-based pricing is expected or observed change of
    the supply and demand balance during time. Time-based pricing includes fixed time-of use rates for
    electricity and public transport, dynamic pricing reflecting current supply-demand situation or
    differentiated offers for delivery of a commodity depending on the date of delivery (futures contract).
    Most often time-based pricing refers to a specific practice of a supplier.

    Captive Product Pricing


    When pricing captive products, companies generally follow a product-mix pricing strategy that involves
    offering a lower price for the core product but placing a higher mark-up on captive products. The goal of
    this strategy is to attract customers to a product with a low price, then make a profit off the captive

    products necessary to use the product. This mark-up strategy translates into a higher profit margin for the
    company.
    Setting the price for by-products in order to make the price of the main product more competitive.
    For example, in producing processed meats, chemicals, or oil
    The manufacturer of meat could seek market for these by products and could accept price for them,
    covering storage and delivering forexample.

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