Segmented pricing

Definition

Segmented pricing is a strategy where a company charges different prices for the same product or service based on specific customer segments or characteristics. This approach allows businesses to maximize revenue by targeting various markets, taking into account factors like demand elasticity, competition, and consumer behavior. It reflects a deeper understanding of the market by recognizing that different groups may perceive value differently, which can lead to increased sales and customer satisfaction.

5 Must Know Facts For Your Next Test

1. Segmented pricing can be based on various criteria such as age, location, purchase volume, or time of purchase, allowing businesses to tailor their offerings effectively.
2. This pricing strategy helps companies capture consumer surplus by charging higher prices to those who are willing to pay more while still offering lower prices to more price-sensitive segments.
3. Examples of segmented pricing include student discounts, senior citizen discounts, and early bird pricing for events.
4. Effective segmented pricing requires thorough market research to identify and understand the different customer segments and their purchasing behaviors.
5. It is crucial for businesses to ensure that segmented pricing does not create customer dissatisfaction or perceived unfairness among different groups.

Review Questions

• How does segmented pricing contribute to maximizing revenue for a business?
  • Segmented pricing allows a business to charge different prices based on customer characteristics and willingness to pay. By targeting various market segments, companies can capture more consumer surplus and cater to both price-sensitive customers and those willing to pay more. This tailored approach not only increases overall sales but also enhances customer satisfaction by providing options that meet diverse needs.
• Discuss the ethical considerations associated with segmented pricing strategies in the hospitality industry.
  • In the hospitality industry, segmented pricing can raise ethical concerns, particularly regarding fairness and transparency. For instance, offering discounts based on age or loyalty can benefit specific groups, but it may also lead some customers to feel undervalued if they are unaware of available discounts. It’s essential for businesses to communicate their pricing strategies clearly and ensure that they do not unintentionally discriminate against certain customer segments.
• Evaluate the impact of digital technology on implementing segmented pricing strategies in today's market.
  • Digital technology has significantly enhanced the ability of businesses to implement segmented pricing strategies effectively. With advanced data analytics and customer relationship management tools, companies can gather detailed insights about consumer behavior and preferences. This enables them to tailor their pricing models more accurately, respond quickly to market changes, and optimize their offers for different segments. As a result, businesses can maximize profits while delivering personalized experiences that resonate with customers across various demographics.

Related terms

Price Discrimination: The practice of charging different prices to different customers for the same product, based on their willingness to pay.

Dynamic Pricing: A flexible pricing strategy where prices change based on current market demands, competition, and other factors.

Value-Based Pricing: Setting prices primarily based on the perceived value of a product or service to the customer rather than on cost.