Price Segmentation Strategy

What is a Price Segmentation Strategy?

Price segmentation is the practice of offering the same products or services for different prices based on who is paying. Examples of a price segmentation strategy include loyalty cards, coupons, and student or senior discounts.

Why Is It Important to Have a Price Segmentation Strategy?

The purpose of this practice is to receive payment even from those who are not willing to pay the regular or maximum price.

Price segmentation can also increase customer loyalty, enticing people back to you to take advantage of more deals. It can even increase your company’s reputation in the eyes of the general public, if you offer deals to a respected class like first responders.

What Internal Data Should I Have for a Good Price Segmentation Strategy?

Most price segmentation strategy data is internal and based on your own transaction and customer data. Your better selling brands, for example, may not receive discounts while your less successful ones will. Customer demographics are also important for determining what products to offer. A particularly successful segmentation strategy can identify customer segments within the customer base and offer personalized deals.

What External Data Is Essential for a Good Strategy?

The difference between essential and useful external data depends on the kind of deal you offer. For example, if you offer pre-order discounts, you need to know when a purchase was made, sometimes down to the time of day.

However, all types of price segmentation strategies require data on similar products in your inventory, in order to entice customers to come back.

What External Data May Prove Useful for a Good Strategy?

Additional external data includes market demographics and studies. Demographics enable you to appeal to those who have not yet become customers. Studies, such as observational studies or focus groups, allow you to ask directly what is the price you can offer a demographic that they are willing to pay—and why.

What Are the Main Challenges of this Use Case?

At its heart, it’s difficult to know if you have offered enough of a discount or reward for customers to use your service and return to your store. Only time can tell, and you may find you have offered too much of a discount to make up for revenue with your returning customers. Only by careful collection and analysis of the data can you reduce the chances of this happening.

Additionally, there is always a chance that loyalty cards or senior discounts are used by those who are not in the demographic.

Interesting Case Studies and Blogs to Look Into

ICAEW: How to get your pricing strategy right and increase business profitability
BlackCurve: Use Price Segmentation For Profit Growth

Tangible Examples of Impact

Price segmentation is a risky strategy. It is easy to do and easy to explain. Just carve up the marketplace by price point. Sometime the price points are given names such as mid-market, up-market, and premium. … Labels such as these make no sense from the viewpoint of customers. The best approach is to create strategies that are focused on customer perceived value.

Forbes: Levi Strauss And Its Good-Better-Best Strategy