Acceptance of price differentiation:

Differentiated prices are omnipresent, but which ones are accepted by customers?

Price differentiation has been learned in many areas and is used by companies to skim off different levels of willingness to pay and increase profits. The acceptance of price differentiation according to fixed criteria is now the rule rather than the exception and is accepted by customers.

Spatial price differentiation:

Companies set different prices for different regional markets in order to skim off different levels of willingness to pay. An example from the automotive industry shows that the selling price of a car abroad can be lower than in your own country. In food retailing, a common everyday product is sold cheaply at home and more expensively abroad as a delicacy.

Price differentiation over time:

Prices vary depending on the time of purchase in order to compensate for seasonal or cyclical fluctuations in capacity utilization. Examples include summer and winter sales, happy hour, discounts for purchases after 6 p.m., night-time electricity rates, night or weekend offers from telecommunications providers, afternoon movie tickets and vacation trips outside the holiday/season.

Quantity-based price differentiation:

The price depends on the quantity or value of the purchase. Companies offer discounts on large purchase quantities in the form of volume discounts, graduated prices and bonuses through rebates or premiums. Examples include permanent discounts for bulk buyers, “buy 3, pay 2”, bonus and reward systems such as Payback cards, Miles & More, loyalty points, Internet flat rates, BahnCard and group prices.

Objective price differentiation:

The price depends on the intended use, often accompanied by slight product differentiation. Examples are branded goods/no-name products (identical product, different packaging when sold in supermarkets and discount stores), design variants when buying a car, 1. & 2nd class by rail, hardcover and paperback.

Personal price differentiation:

The price is based on the characteristics of the customer or customer group. Examples include offers for pupils, students and pensioners, discounts for employees, additional persons (e.g. children traveling for free), discounts for the unemployed or families with many children.

Other forms:

Prices vary depending on the sales channel, e.g. Internet or specialist retailers.

Conclusion:

A basic prerequisite for the acceptance of price differentiation is the effective separation of customer groups according to their willingness to pay. It must be possible to identify customers with different price propensities and to separate them from each other by means of well-functioning fencing in order to prevent negative arbitrage effects. The differentiation must be comprehensible to the customer and perceived as fair in order to avoid dissatisfaction. This can be achieved by a sufficiently large difference in benefit between two products, effective access control or the linking of prices to purchase quantities. Price differentiation is therefore often accompanied by a certain versioning or use of different distribution channels.

The acceptance of price differentiation is made more difficult if the differentiation is perceived as unfair by the customer. Examples show that price differentiation must be well thought out to ensure customer acceptance.

Individual prices for individuals are often only accepted as a result of individual negotiations, such as when buying a car. If you want to break new ground in price differentiation, you should carefully examine the opportunities and risks that arise from such differentiation. UNEX Management Consulting supports you in examining the potential of price differentiation and possible obstacles to the acceptance of differentiated prices for your products. Just get in touch with us.