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7.1.5 Price Discrimination

1. Price Discrimination

Price discrimination refers to selling the same product to different customers at different prices. The pricing varies based on factors such as customer segment, location, and channel.

Types of Price Discrimination

  1. Customer Segment Pricing
  2. Different rates for specific age groups (e.g., kids, elders) or genders.

  3. Example: Reduced ticket prices for children and seniors in movie halls.

  4. Product Form Pricing

  5. Variants of the same product are priced differently, not in proportion to their production cost.

  6. Example:

    • Mineral water prices at airports are higher compared to convenience stores or railway stations.
    • Chocolates sold in premium outlets are priced higher than in regular stores.

  7. Channel Pricing

  8. Pricing differs based on the sales channel.

  9. Example:

    • Products sold through a company’s direct channel might have a lower price than those sold via multi-brand outlets.

  10. Location-Based Pricing

  11. Pricing varies by location.
  12. Example:
    • Movie tickets or food items are often more expensive in cinemas and airports compared to other locations.

2. Product Mix Pricing

Product mix pricing involves strategies to price products within a line or across complementary items.

Types of Product Mix Pricing

  1. Product Line Pricing
  2. Pricing different items in a product line to reflect their quality or target customer segment.

  3. Example:

    • iPhones with varying features and specifications are priced differently.
    • FMCG brands offer variants like Surf, SurfXL, or SurfXLmatic, each priced according to their features (e.g., top load, front load, liquid, powder).

  4. Optional Feature Pricing

  5. Base product priced separately, with additional features priced as extras.

  6. Example:

    • Cars have a base price, with optional features such as leather seats or advanced sound systems costing extra.

  7. Captive Product Pricing

  8. Base product is priced low, but consumables required for its use are priced higher.

  9. Example:

    • Gillette razors are inexpensive, but replacement blades are costly.
    • HP printers are affordable, but cartridges are priced higher.

  10. Two-Part Pricing

  11. Pricing involves a fixed fee and a variable charge.

  12. Example:

    • Telephone services include a fixed rental fee plus variable charges based on usage.
    • Electricity bills often have fixed charges plus charges based on consumption.

  13. Product Bundling Pricing

  14. Offering discounts for purchasing multiple items together as a bundle.
  15. Example:
    • Retailers bundle products like shampoo and conditioner or offer discounts on meal combos.

Conclusion

Pricing strategies are crucial in addressing diverse customer needs, optimizing revenue, and ensuring market competitiveness. By leveraging techniques like price discrimination and product mix pricing, businesses can cater to specific market segments, enhance perceived value, and boost sales effectively.

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