Pricing Segmentation

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VISHWA VISHWANI INSTITUTE OF SYSTEMS AND MANAGEMENT

PRESENTED BY:TEAM-6

SEGMENTED PRICING


What Is a Price?

• The amount of money charged or paid for a product or service.


Price Adjustment Strategies

• Discount and allowance pricing• Price discrimination (Segmented pricing)• Psychological pricing• Promotional pricing• Dynamic pricing


SEGMENTED PRICING

Selling a product or service at two or more prices,where the difference in prices is not based on differences in costs.

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• A segmented pricing strategy uses two or more different prices for a product, even though there is no difference in the item’s cost.

• This strategy can help optimize profits and compete more effectively.

• Also called revenue or yield management.

• Certain conditions must exist for segmented pricing to be effective.


• Revenue management may also be defined as the use of differential pricing based on customer segment, time of use, and product or capacity availability to increase supply chain profits


• Price segmentation (offering different prices to different market segments) increases overall revenues and profits.


• As an example, imagine that your business only offers one product priced at $5. But some consumers are willing to pay up to $8. You are leaving $3 on the table for each of them. Other consumers are more price-sensitive and only willing to pay $3. You do not get any of their business. With price segmentation more revenue is generated by offering three prices -- $3, $5 and $8 – instead of just one -- $5.


Market SegmentationCharacteristics• age• gender• geographic location• income• spending patterns• cultural background• demographics• marital status• education• language• mobility


Segmented Pricing Strategies

Four factors can help marketers use segmented pricing strategies:

• Buyer identification: Some buyers are more price-sensitive than others.

• Product design: Different product styles may be more in demand.

• Purchase location: Some areas have higher prices than others.

• Time of purchase: Demand for products and services rises at certain times.


Price-Adjustment Strategies

Price Adjustment StrategiesPrice Adjustment Strategies

SegmentedAdjusting Prices to Allow

for Differences in Customers,Products, or Locations.

SegmentedAdjusting Prices to Allow

for Differences in Customers,Products, or Locations.

CustomerCustomer

Product FormProduct Form

LocationLocation

TimeTime


CUSTOMER SEGMENTED PRICING

• Different customers pay different prices for the same product or service.

• Some buyers are more price-sensitive than others.

• Charging different prices to different buyers based on observable characteristics that signal buyers' price sensitivity.

• e.g. museums charges different rates for children, students, adults, and senior citizens.


PRODUCT FORM PRICING

• Different product styles may be more in demand.

• When different versions of the product are priced differently but not according to differences in cost.(NOT HAVE MUCH DIFFERENCE)

• Ex: An ordinary stand fan may be sold for P400. The same stand fan which has an added feature, say, a timer which costs P120 to install may be sold for P1,500.


LOCATION PRICING

• Different locations are priced differently even though the cost of offering each location is the same. e.g. Movie houses, BALCONY SEATS

• Charge higher prices at places where less price sensitive buyers purchase

• Price sensitive and price-insensitive buyers naturally purchase at different locations or…

• Insensitive buyers will not change purchase location to take advantage of the price difference


Segmenting By Volume Or Purchase Quantity

• When price segments differ in the quantities they buy, charge different prices for different quantities

• Ex: This is usually done depending upon quantities ordered. They have the normal wholesale price per article, and then offer discounts of say 2.5% on quantity below 10, 5% for orders of 10-100, 7.5% for orders of 101 - 200, and 10% for orders over 200.

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TIME PRICING

• Demand for products and services rises at certain times.

• Charging higher prices at times when less price sensitive buyers naturally purchase, and charge lower prices at times when it would be inconvenient for them to purchase.

• There must be a natural difference in time-of-purchase patterns for different segments of buyers.


TIME PRICING

• Price of a certain product varies according to the time or season of the year

• EX: Higher hotel room rates for holidays and other peak tourist seasons


Segmenting By Product Bundling

Selling different products either as an indivisible bundle, or only at higher prices if separated

• Buyers must differ in their relative valuations of the bundled goods.

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Examples

Salido’s Salad and Sandwich Shop

The local outlet of a fast food chain charges $2.60 for a salad from its salad bar if ordered a la carte. When ordered with a sandwich, however, the salad bar costs only $1.99. In either case, the customers are permitted to fill their bowls just once

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Smart Steak House

A fancy steak house in a shopping mall offers a 20% discount to employees of other stores in the mall, provided that they eat before 6:00 PM or after 8:00 PM

– Can you explain the rationale for this strategy?

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Delicious Deli

A deli in a college town has an interesting pricing strategy for students. The dinner specials at the restaurant are normally $4.95. Students, however, can buy weekly "meal tickets" that give them three meals for $13.90, 5 meals for $22.25, or seven meals for $29.90. The tickets expire at the end of each week and they are not transferable

– Can you explain this pricing strategy?

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The Importance of Segmented Pricing

• Designing an optimal price structure that effectively segments your market and maximizes your profitable sales opportunities is clearly among the most difficult aspects of pricing strategy.

• This types of segmentation tactics discussed can serve as a guide to separating markets, finding a basis for segmentation (i.e., a particular buyer characteristic or a particular bundling combination) ultimately requires creative insight.


Price Adjustment Strategies

• Market is segmentable• Segment must show

different degree of demand.

• Pricing must be legal• Costs of segmentation can not

exceed revenues earned• Segmented pricing must reflect

real differences in customers’ perceived value

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Conditions Necessary for Segmented Pricing Effectiveness

Documents

Pricing Segmentation