Price Segmentation: Justify it or Hide it
Nobody wants to pay more. They don't want to feel "ripped off". They want to feel special, like they received a good deal. However, it is in a firm's best interest to charge different customers different prices based on how much they are Willing To Pay (WTP). If a customer is WTP more you want to let them. If a customer is only WTP less, you may still want them as a customer so you charge them less. We've blogged several times about how to execute pricing segmentation (Customer characteristics, transaction characteristics, behaviors, and product portfolio), today we are talking about what your customers should know. Since your customers don't want to feel cheated, then you only have two choices on how to communicate price segmentation: justify it or hide it. Customers see price segmentation all of the time and have come to accept it. For example, students pay less at the movie theaters. Vacationers pay less for flights than business travelers. These are visibile and "justified". Here are several ways to think about justifying pricing segmentation:
- Publish your highest list price. Offer discounts to customers who "deserve" them.
- Volume discounts.
- Lower cost to serve some customers.
- Need to sell excess supply.
- Helping the poor (senior citizens, students, etc.)
- Don't change the rules often. Once your customers know and accept them, leave them alone.
- Don't publish a price list. Nobody knows what they should pay.
- Give every customer a unique quote. Don't share that information.
- Put your best prices in contracts.
- Make pricing so complex it's difficult to compare.
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