A Fantastic Example of Price Segmentation Using Distribution
Everyone who reads this blog knows that we should use price segmentation to capture more from those willing to pay more, yet still win from those only willing to pay less. We’ve talked about many ways of doing this.
One technique is to create different products in a portfolio. You could have slightly different products targeting different market segments, or good, better, best offerings within a market segment.
You can use the exact same product in different distribution channels. An article on Quartz, titled “This one couch is listed for four different prices, with five different names, on five different sites,” describes a fantastic example.
The company is Wayfair. They sell home furniture on the Internet. With $1 billion in revenue last quarter, they are up 40% over the same quarter last year. They are certainly doing something right.
The Quartz article provides 13 different examples, but here is the couch information:
Sleeper Sofa (with pricing at time of blog post)
Wayfair: Tulsa Sleeper Sofa ($256.99)
AllModern: Monkton Combe Sleeper Sofa ($274.99)
Birch Lane: Fort Collins Sleeper Sofa ($266.99)
Joss & Main: Remy 77″ Sleeper Sofa ($259.99)
If you click through these links you will see the identical sofa, with each link using a different name.
What’s going on here? First, they are taking advantage of the fact that it’s very difficult to compare sofas (or furniture). By changing the name, they make it less likely that shoppers will find the same sofa on two different websites. If you saw the Tulsa Sleeper Sofa on Wayfair’s site for $257 and wanted to price shop, you would search for “Tulsa sleeper sofa” and no other sites would come up. It’s challenging to search on photos.
But although it’s challenging, it’s still possible. I copied and pasted the photo into Google. They found many sites where that exact photo is being used. A suggestion for Wayfair would be to use different photos for different sites.
Second, all of the sites listed are building a relationship with their customers. They aren’t trying to sell one item. So, for example, someone who has a relationship with AllModern, who trusts AllModern, may not shop elsewhere. They just buy from AllModern.
Also, if one of the names gets a horrible reputation for whatever reason, the other sites don’t have to discontinue the product. It only affects one name.
This technique works very well for products that are hard to compare.
One downside to this, though, is that it’s tough to get momentum behind the product. By offering the same product with 4 different names, the product recognition has been diluted. If one name takes off, the goodwill from that name won’t rub off on the others. Similarly, imagine there is an independent sofa evaluation company and they review the Fort Collins Sleeper Sofa and rate it a “Must Buy.” That rating doesn’t apply to the other names. (Strategically, if one name does extremely well and receives high ratings and a ton of fabulous reviews, then the other sites could always sell the successful product under the same name–but it’s harder to charge different prices that way.)
Another downside of four product names is that the company has to manage 4 times as many products. This is manageable, but many companies work hard to reduce or at least manage the number of SKUs. That’s a general problem with price segmentation. It always adds complexity to the business. Most of the time it’s worth it, but not always.
Overall, this is a valuable price segmentation strategy. If your products are challenging to compare and you sell through multiple distribution channels, give it a try.
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