5 Top Tips for Using Price Discrimination
by Samuel Gitukui
Most of us have come across a scenario where the price of say, a soda costs $1 at the local store. However, when you visit the stadium to watch your favourite match, you buy the very same bottle of soda at $5. What’s going on here? It’s called price disclination and is a common occurrence in business.
However, businesses that seek to employ price discrimination need to be careful. Charging too much above the cost may cause the clients to view your business as a rip off and walk away. Do it right though, and the business can experience huge profit margins.
Common as it is, does every business employ price discrimination? Actually, most businesses will try and avoid it. Why? Because of the difficulty involved in setting the prices just right without making the customer feel provoked. If you have decided on it though, here are a few strategies to ensure that you get it right.
1. Product Differentiation
One great way to add price discrimination is through product differentiation. You can add a few extra features to a product such that they actually seem different. Then, charge different prices.
Take the automotive industry for example. You might have a standard model with a fabric interior going for less than a deluxe model with leather seats even while the cars have the same engine, frame and basic components.
2. Creating Outlet Centers
Outlet centers charge clients significantly less than the normal retail stores. However, for a customer to take advantage of these lower prices, they need to travel to the outlet centers and deal with the long lines.
The customers who do not mind paying higher prices can still go to the normal retail stores. Surprisingly, research shows that once the lower paying customers get an increase in income, they normally start visiting the traditional retail stores and are willing to pay more for the same products.
3. Create a Sale
By taking two days of the week to sell products at slightly lower prices, you will be surprised at how price conscious most customers are. You will be able to move more product for slightly less profit. An example is Black Friday.
4. Location-Based Pricing
It is not uncommon to find the price of an avocado going for $2 in one location and $3 in another. By understanding your target market, you can adjust the prices accordingly to capitalize on the profits. A few things to keep in mind is that the differences in price should not be too large and the customers should be willing to pay the different amounts in those locations.
5. Different Prices for Different Periods
Business is not always a walk in the park. There some seasons where customer numbers are low while other seasons the business is booming.
To make sure that your business keeps a steady flow of customers even during off peak seasons, a good strategy is to lower the price or offer a major sale. During peak business seasons, you can take prices back up again.
by Samuel Gitukui
Most of us have come across a scenario where the price of say, a soda costs $1 at the local store. However, when you visit the stadium to watch your favourite match, you buy the very same bottle of soda at $5. What’s going on here? It’s called price disclination and is a common occurrence in business.
However, businesses that seek to employ price discrimination need to be careful. Charging too much above the cost may cause the clients to view your business as a rip off and walk away. Do it right though, and the business can experience huge profit margins.
Common as it is, does every business employ price discrimination? Actually, most businesses will try and avoid it. Why? Because of the difficulty involved in setting the prices just right without making the customer feel provoked. If you have decided on it though, here are a few strategies to ensure that you get it right.
1. Product Differentiation
One great way to add price discrimination is through product differentiation. You can add a few extra features to a product such that they actually seem different. Then, charge different prices.
Take the automotive industry for example. You might have a standard model with a fabric interior going for less than a deluxe model with leather seats even while the cars have the same engine, frame and basic components.
2. Creating Outlet Centers
Outlet centers charge clients significantly less than the normal retail stores. However, for a customer to take advantage of these lower prices, they need to travel to the outlet centers and deal with the long lines.
The customers who do not mind paying higher prices can still go to the normal retail stores. Surprisingly, research shows that once the lower paying customers get an increase in income, they normally start visiting the traditional retail stores and are willing to pay more for the same products.
3. Create a Sale
By taking two days of the week to sell products at slightly lower prices, you will be surprised at how price conscious most customers are. You will be able to move more product for slightly less profit. An example is Black Friday.
4. Location-Based Pricing
It is not uncommon to find the price of an avocado going for $2 in one location and $3 in another. By understanding your target market, you can adjust the prices accordingly to capitalize on the profits. A few things to keep in mind is that the differences in price should not be too large and the customers should be willing to pay the different amounts in those locations.
5. Different Prices for Different Periods
Business is not always a walk in the park. There some seasons where customer numbers are low while other seasons the business is booming.
To make sure that your business keeps a steady flow of customers even during off peak seasons, a good strategy is to lower the price or offer a major sale. During peak business seasons, you can take prices back up again.
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