Chapter 4

PRICING
STRUCTUR
E

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Tactics for Pricing Differently

across Customers Segments
In the previous chapter, we discussed the creation of value and making
customers aware of the products and services on offer.

MARKETERS must determine the most profitable way to capture

a share of that value in terms of both volume and margin

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Customers' perspective towards
differentiating the value of features is a
challenge due to:
• Differences in their abilities to pay

• Their subjective preferences

• Their end-use applications

• Their experiences towards the

categorize product

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Challenges that can undermine segmented pricing

Why pricing segmentation is much more difficult than other aspects of

marketing include:

• Customers strong incentives towards price charge

• Customers disguise to be qualify for lower price
• Channel intermediaries- product distribution to received higher price
• Gray Market sales- creates challenges for the companies
• Manufacturer can lost higher price sales from high value country
• Sales lost despites of lower price due to shortages of products

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Significant differences in the cost for
serving customers can be driven by:

• The timing of customers’ needs

• The speed of their payments

• The level of service and support

they require

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 Significant differences in the cost
for serving customers can be
driven by:

Offer Price
configurations Fences

Price
Metrics
 Optimizing the structure of
offer bundle
Price Configuration

• Offers different feature bundles for different

segments
Designing Segment-specific
• Requires minimal requirement of price differences
Bundles
• Price configuration will depends on customers
choice
• Know which services should include in bundles
• People are “less sensitive” to the cost-value added
features Unbundling strategy
• Charge separately the features that is pricey from
any bundles
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Optimizing the
structure of offer
bundle
• Bundling is simple if customers targeted for high-price
value features
• Value-added can attract lower-value customers
• Bundle offering is based on customers ranked features
of service
• Evaluating alternatives bundles needs spreadsheets for
profit maximization
• Valuing different segments is the key to bundle
• Maximizing revenue with one bundle containing
different elements
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Designing Segment-
specific Bundles
• Bundling can also facilitate segmented pricing
• Customer segment have different price sensitivity
• Attract customers segment requires lower price to win
them
• Be profitable during off-peaks periods
• An alternative adding features that raises value to
discount offered
• Selective uglification
Home

Unbundling strategy

• The opposite effect when variable cost services are

bundles
• Cost provides services bundles simply to differentiate
an offering
• Customers failed to recognized the value unless of
price attachment
• Bundle price is better deal
• Bundling optional services for free will undermine
profitability
• Lowering cost service is option for competitive match
price
 Creating Good price Metrics

Price Metrics

• Are the units to which the price is applied

• Define the terms Exchange
Performance-based Metrics
• “What exactly the buyer will receive per unit of
price paid”
• Range of possible options
• Common categories such as: per unit, per use,
per time spent consume, etc
• Cons: They are adopted by default or tradition

Tie-Ins Metric
Creating Good price Metrics

• The most profitable prices metrics

categorize to the following:
• Tracks difference in value across segments
• Tracks with differences un cost to serve
• Easy to measure and enforce
• Facilitate favorable positioning versus
competition
• Aligns with how buyers experience value in
use

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Performance-based Metrics
• Pricing is based on the performance
provided
• Price structures can actually work that way
• Example: attorney, the pricing depend if
they win or lose the trials.
• Effecting the shifting performance risk from
buyer to seller
• Buyers takes risk than accepting lower price
• Simply impractical, needs information and
trust

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 Tie-Ins Metric
• Company who sells capital goods challenge
is based on their used.
• Their impact to competitive market for the
tied commodity
• Proverbial razor to razor blade strategy is
used
• Services used to reduce cost for new buyers
to try their services
• Using of packages for low-knowledge
buyers for risk awareness
• Developed into loyal buyers, accustomed to
firm’s technology

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 Buyer Identification Fence

Price Fences

• Charging different prices for the same Purchase Location Fence

products/service to different customers
• Using same the metrics
• Fixed criteria that customers must meet to
qualify for lower price
• simplest way to charge different prices to Time-of-Purchase Fence
reflect different levels of value
• Sometimes create resentment for the
customers
• Creativity is require to succeed market

Purchase Quantity Fence

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Buyer Identification
Fences
• Pricing is easy at different levels across
segments
• Sellers used customers characteristics to
identify the price
• Example: in salons, when rebonding,
pricing depend of the length of the hair
• Sellers identify customers through deal-
prone-shoppers
• Deal proneness is form of customers
identification
• It requires trained sellers for evaluating
information
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Purchase Location
Fences
• Customers value segmented by purchase
location
• Common practice for a wide range of
products
• Discounts attracts local and more price
sensitive
• Freight absorption: sellers agreements to
shipping cost depending on location
• Trade barriers between countries segmented
by locations
• Trade barriers declined around the world
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Time-of-Purchase
Fences
• Segmenting the price based by time of
purchase
• Priority Pricing is example of time
purchase segmenting
• Applies to business-to-business
• Time is useful fence when demand
varies significantly with purchase
• Products or service not storable
• Reflects the opportunity cost limited
capacity
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Purchase Quantity
Fences
• Different quantities sometimes segment for
pricing with quantity discounts
4 types of quantity discount tactics:
• Volume discounts: Most common product
selling for business customers
• Order discounts: Vary the prices by order
size than customers total purchase
• Step discounts: Purchase beyond a specific
field
• Two-part pricing: ways of structure volume
discounts
• Generally dealings with price sensitivity,
costs, and competition
Peak Pricing and Yield Management
Peak Pricing
• Form of cognition pricing
• Customers pay additional fee during high
demand period
• Promote efficient resource use or time-
shifting to cheaper or free off-peak travel
Ex: taxi driver- the price paid for them is based
on how far the place the customers are

Yield Management
• Dynamic pricing strategies based on
consumer behavior analysis
• Most gaining companies used this method
• Maximize profits by offering the best price
at the best time

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