Can you imagine being able to enter your customers’ brains and know how much they are willing to pay for your product?
Although not literally, there are pricing strategies that are based on this idea, such as the price discrimination technique.
The main concept is to charge the maximum price for the same product or service for each type of consumer.
Many companies apply this type of strategy.
Here we explain how they do it and show you some examples.
What is price discrimination?
Price discrimination consists of charging different prices for a product or service, although the production costs are the same. In this case, the price is associated with the consumer surplus (the difference between what he is willing to pay for a good and the price he actually pays for it).
Setting a high price for a product means that it is not accessible to some groups of consumers. An example would be the premium pricing strategy followed by Rolex.
On the other hand, if you do not want to limit your product to such a small fraction of potential customers, but you want to charge the highest possible price based on consumer demand and predisposition, you can choose to price discriminate.
This pricing strategy allows you to increase sales by reaching a larger number of consumers. However, to carry it out, you will need to have a thorough knowledge of the market price and of the buying habits, preferences and economics of different types of consumers.
The goal of price discrimination is to make the most of what your customers are willing to pay for the product.
What do you need to apply price discrimination?
Price discrimination strategies are not available to all companies.
In order to be able to charge different prices to different consumers, at least 3 main circumstances must be present:
- Having a certain authority: you can only charge prices above the market average if you provide something (material or emotional) that your competitors do not have.
- Capacity for analysis and study. You must know each target perfectly well and know what is the maximum price they want (and can) pay.
- Avoid reselling items. Through manufacturer’s warranties, contractual agreements or legal restrictions.
Most common types of price discrimination
We can find different ways of price discrimination. We explain the 3 most frequent ones and show you some examples:
Perfect or first-degree discrimination
Perfect or first degree discrimination occurs when the seller knows exactly how much each consumer wants to pay.
This type is the most difficult to apply in large companies, because they do not have the necessary information to do so. It is a technique more typical of small businesses or localities, where there is little or no competition.
In this way, they can charge the total surplus of each consumer.
For example, when you know that you are the only professional who performs that work in the area and, in addition, you know the economic availability of your customers.
Quantity or second-degree discrimination
In this second degree, discrimination takes place when the seller creates batches or combines different products or services, so that consumers themselves can choose.
A very graphic example is the discount that is made according to the quantity or volume of purchase. In other words, the more units purchased, the better the price. Another example would be 2×1, 3×2, etc. offers.
In this case, the discrimination is not based on the type of consumer, but on the quantity purchased.
Grouping or third-degree discrimination
Discrimination by grouping consists of having a different price for each group of consumers.
For example, having one tariff for wholesalers and another for individuals, applying different prices according to age (children, young people, over-65s, etc.), or according to some characteristic or condition (students, military personnel, pensioners, etc.).
Do you know how to take e-commerce price discrimination to another level?
Discriminate pricing strategies can help you in your e-commerce, but executing them is not easy.
Day by day the number of consumers who resort to a price comparator to make their purchases is increasing. Therefore, if you want to be competitive, it is necessary to rely on technology to be able to continuously track prices of your competition.
Boardfy helps you apply your pricing strategy intelligently
Not all price monitoring applications are the same, nor do they have the same potential.
Are you familiar with the concepts of Dynamic Pricing and Price Intelligence?
They will be your best allies when applying a price discrimination strategy in your e-commerce.
And Boardfy is the best one to help you.
Boardfy is not only the fastest price monitoring tool in the world, it also incorporates advanced artificial intelligence technology, with all the ingredients you need:
- Near real-time price monitoring. Our speed will be your great advantage to know where you stand as a competitor at all times. You will even know if you have no competition in any product.
- Dynamic Pricing to make price changes automatically and instantly. No more lost sales opportunities for not seeing it in time.
- Price Intelligence. Implement intelligent pricing strategies that allow you to maximize your sales and profits. You set the rules and Boardfy executes them for you. Always sell at the highest possible price depending on market circumstances.
Discover all that Boardfy can do for you
Upload your catalog to Boardfy and find out what position you occupy in any marketplace or platform where you sell your products.
Boardfy takes care of analyzing prices and performs the necessary actions to implement the strategy you have set.
In addition, it helps you to get the Buy Box: always have competitive prices on Amazon if your margin allows it.
It is also ideal for optimizing your campaigns: bid only when your prices on Google Shopping are competitive.