Price Segmentation 2018-11-19T13:52:08+00:00
Price Segmentation

Price Segmentation

Price segmentation means that you divide your business offering into different segments to optimize your pricing.

In simplest of words, price segmentation is creating different prices for different groups of customers for the same product or service.

Overview

Consider the price of a movie ticket: Students enjoy discounted prices whereas average adult pays the full price. Similarly, elderly segment of the target audience get different price perks as well.

For a business, segmentation plays a vital role.

It allows them to divide their customers in different groups according to their preferred choices and characteristics. How does this help?

Basically, marketers can target specific groups of people with unique products and prices. This is where product segmentation and price segmentation come in.

 

 

What is price segmentation?

Price segmentation is not only a powerful tool to get more sales but also a wise strategy considering that all customers are not same. There are never going to be two customers that are having the same willingness to buy from you and as a business you want to ensure you capture all customer segments.

Businesses use customer preferences when it comes to price to their advantage. The best example is of airlines which can charge a single seat for different prices. If a customer books early they get the same seat cheaper compared to someone who gets it at the last minute. Why? Customers that are looking for a seat right before the departure don’t really care about the price since they really need the seat.

Similarly, prices vary according to geographical location of customers as well. Prices of airline tickets is higher in wealthy countries since customers here have stronger purchasing power.

 

 

Raise the profit by opting five different types of price segmentation

Price segmentation by customers

A few clients are more delicate and worried about the price they pay. They’re inspired by the amount they pay instead of what they get in return in the deal.

To fulfill these clients, it’s better to separate them in distinct ways they want to spare the cash. These strategies can incorporate coupons or discounts.

Then again, a few clients are exceptionally energetic by the deal’s value and care considerably less about the price. These clients will pay more and according to the value of the product.

To serve these clients, increment prices by the distinctive structures. This incorporates time and efforts for clients, item quality, simplicity of execution, and that’s only the tip of the iceberg.

Price segmentation by buying situation

This is the most difficult and least implemented type of price segmentation. You must know the different taste and requirement of every customer you target. To get your customers rolling, always complete the customer’s emergency requirements. This can include quick delivery, proper and special wrapping etc. And yes, don’t forget to ask for extra price for these emergency and special requirements.

Price segmentation by volume

This strategy can be applied to the customers in two ways:

  • Order volume: separate those who buy a bulk number of products from those who buy smaller quantity of the product every week.
  • Annual volume: some people buy less product but more frequently and when you add up their purchase, it equals to a good amount.

While there are some people, who buy a product in bulk once in year and then disappears for another year. Their purchase volume is less by the end of the year. In this type of segmentation, clients are served with getting less profit.

Price segmentation by stock levels

Clients will pay more for an uncommon thing and frequently hope to pay less to something they can discover anywhere.

To benefit from this methodology, price items in high stock and demand marginally lower to pick up an upper hand. For rarer items, do the inverse. Having an uncommon item in stock is essential for that one client who needs it. By having it available, you give the item an increased worth to buy, which you can achieve with an increased price.

Price segmentation by location

Next consider how your clients change by area. A few zones are costlier than others for any number of reasons, including delivery, duties, and the general expenses of working together.

Clients in these different markets are accustomed to pay a lot, and there’s no explanation to back away from this strategy. Catch higher prices in areas where it runs well.

 

 

So, is this fair?

One thing that often gets discussed with price segmentation is whether it’s fair for a business entity to differentiate between its customers. It is perfectly legal for businesses to sell their products and services at varying prices and customers have rarely complained about it.

Nevertheless, there have been issues with price differentiation strategies as well. For instance, back in 2007 Steve Jobs had to publicly apologize when Apple slashed $200 from its iPhone prices just after two months of its release. This was an unfair move by those that bought the phone initially since they bought it at premium price.

Coca Cola also came under scrutiny when it was revealed that it was using price differentiation strategy with its vending machine. Back in 2005, it was found that coke bottles were charged higher if the temperature was hot and lower when it was colder.

Strategy card

Strategic importance (retail) 82
Strategic importance (ecommerce) 82
Ease of use 75
Practical implementation 80

How to use Price Segmentation

  • Measure the affectability of price – Measuring price affectability can be precarious. Rank your clients by most brief time to bargain close and minimum measure of negotiations to figure out which clients care more about value and which care more about price.
  • Make cash by having valuable things – Distinguish your best value-added bargain components. At that point split up your clients by who will pay for them.
  • Do not widen your segmentation – The more segments, the better. The more profound and more intricate you go, the more focused on your prices can get. These client groupings likewise furnish better information with time, enabling you to adjust your valuing methodology significantly further.
  • Take the risks – Test new prices as frequently as could be expected under the circumstances. Always attempt diverse factors and see what works best. Your clients are liquid components of your general technique. As they change, you excessively should be equipped for adjusting. By thoroughly testing, you can learn these unpretentious segmentation moves as they occur and gain benefit from them.