Using Price Discrimination to Increase Business Sales
by John Grey on February 14, 2012
Price discrimination is not as bad as it sounds. All companies practice some form of price discrimination because it is clear that it is one way to drive more sales. Price discrimination is the practice of selling identical products or services at different price points. True, you may be exploiting different income classes to your benefit since consumers that are willing to pay more (or less) fall in different income classes. However, typically price discrimination occurs and is justified because some consumers are not as valuable as other consumers. Types of Price Discrimination
Quantity discount: Incentivizing and rewarding consumers that purchase in bulk through price breaks. This form of price discrimination is segmenting your consumers into bulk buyers and not-so bulk buyers. For example, Costco offers three forms of memberships: Executive (most expensive), business (middle tier), and Gold (lease expensive). Location/affiliation discount: This form of price discrimination rewards consumers that are local by enticing them to continue to return through some form of price break – such as a restaurant or local book shop. Sometimes this price discrimination occurs by affiliation – for example, student’s of a local university might receive a discount at the student book store. Stop for a second and think about why this would be beneficial for the school: the visitors that are not enrolled in the local university but walk into the school bookstore are most likely tourists or prospective students. They are willing to pay a higher price for the item since the school is one that the prospective student desires to attend. Price Sensitivity discounts: Some consumers are willing to pay more for certain products or services because they have deeper pockets. For example, Microsoft Windows price discriminates by offering a corporate licensed copy of windows vs. a personal...