Price segmentation is a strategic approach to pricing where different prices are set for the same product or service based on criteria like timing, location, and demographics. It aims to capture the maximum willingness to pay by offering tailored prices to various customer groups, thus optimizing revenue. The strategy includes customer-based, bundle-based, time-based, location-based, quantity-based, and condition-based segmentation, each with its own set of advantages and challenges.
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Price segmentation is a pricing strategy that involves setting different prices for the same product or service based on various criteria
Maximizing willingness to pay
The main objective of price segmentation is to capture the maximum willingness to pay across different market segments
Optimizing revenue
Price segmentation allows companies to optimize their revenue by offering tailored prices to different customer groups
Differentiating from product segmentation
Price segmentation differs from product segmentation as it offers the same or similar products at varying prices to different customer groups
Advantages
Price segmentation has several advantages, including increased profits, expanded market share, and pricing flexibility
Disadvantages
Price segmentation also has drawbacks, such as potential confusion and dissatisfaction among customers and employees
Customer-based segmentation tailors prices to the socioeconomic status of consumers
Product bundle-based segmentation offers discounts for combined purchases, catering to price-sensitive customers
Product value-based segmentation charges premiums for additional features or services
Time-based segmentation adjusts prices according to the timing of the purchase, such as early booking discounts
Location-based segmentation varies prices by the point of sale or delivery
Quantity-based segmentation provides price reductions for bulk purchases
Condition-based segmentation fluctuates prices based on payment terms or types of service, rewarding customers for certain behaviors like upfront payment
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______ segmentation is a strategy that sets varying prices for identical products based on criteria like timing, ______, and customer ______.
Price
location
demographics
01
Define consumer surplus.
Consumer surplus: difference between max price consumer willing to pay and actual price paid.
02
Objective of price segmentation.
Price segmentation aims to minimize consumer surplus, maximizing company value capture.
