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. ÊWeÕve 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.

OR É

You can use the exact same product in different distribution channels. ÊAn article on Quartz, titled ÒThis one couch is listed for four different prices, with five different names, on five different sites,Ó describes a fantastic example.

The company is Wayfair. ÊThey sell home furniture on the Internet. ÊWith $1 billion in revenue last quarter, they are up 40% over the same quarter last year. ÊThey 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:ÊTulsa Sleeper SofaÊ($256.99)

AllModern:ÊMonkton Combe Sleeper SofaÊ($274.99)

Birch Lane:ÊFort Collins Sleeper SofaÊ($266.99)

Joss & Main:ÊRemy 77? Sleeper SofaÊ($259.99)

If you click through these links you will see the identical sofa, with each link using a different name.

WhatÕs going on here? ÊFirst, they are taking advantage of the fact that itÕs very difficult to compare sofas (or furniture). ÊBy changing the name, they make it less likely that shoppers will find the same sofa on two different websites. ÊIf you saw the Tulsa Sleeper Sofa on WayfairÕs site for $257 and wanted to price shop, you would search for ÒTulsa sleeper sofaÓ and no other sites would come up. ÊItÕs challenging to search on photos.

But although itÕs challenging, itÕs still possible. ÊI copied and pasted the photo into Google. ÊThey found many sites where that exact photo is being used. ÊA 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. ÊThey arenÕt trying to sell one item. ÊSo, for example, someone who has a relationship with AllModern, who trusts AllModern, may not shop elsewhere. ÊThey just buy from AllModern.

Also, if one of the names gets a horrible reputation for whatever reason, the other sites donÕt have to discontinue the product. ÊIt only affects one name.

This technique works very well for products that are hard to compare.

One downside to this, though, is that itÕs tough to get momentum behind the product. ÊBy offering the same product with 4 different names, the product recognition has been diluted. If one name takes off, the goodwill from that name wonÕt rub off on the others. ÊSimilarly, imagine there is an independent sofa evaluation company and they review the Fort Collins Sleeper Sofa and rate it a ÒMust Buy.Ó That rating doesnÕt apply to the other names.Ê (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. ÊThis is manageable, but many companies work hard to reduce or at least manage the number of SKUs. ÊThatÕs a general problem with price segmentation. ÊIt always adds complexity to the business. ÊMost of the time itÕs worth it, but not always.

Overall, this is a valuable price segmentation strategy. ÊIf your products are challenging to compare and you sell through multiple distribution channels, give it a try.

 

 

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Mark Stiving

Mark Stiving

Mark Stiving is chief pricing educator with Impact Pricing LLC. Connect with him on LinkedIn

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