Explain Differential pricing method

FinanceFinance ManagementBanking & Finance

In a differential pricing method, the price of the same product is set differently based on customers, location, product form etc. The main objective of this method is profit maximization. This pricing is also called as discriminatory or multiple pricing.

Price is set based on the following factors −

  • Customer segment pricing − Different people will pay different prices for the same product based on the segment they live in. For example, examination fees.

  • Image pricing − Based on the image of the product in the market, companies will charge differently in the market for the same product. For example, clothes.

  • Product form pricing − Based on product variant, companies will charge different prices for the same product. For example, the same mobile has different cost in change in colour, storage etc.

  • Location pricing − Based on location of offering, companies will charge differently for the same product. For example, the cost of executive tickets is different from normal tickets in theatres.

  • Time pricing − Price of the same product will change according to the time of purchase. For example, seasonal offers, air tickets etc.

Various methods of differential pricing are as follows −

  • Based on customer characteristics.
  • Encourage customers to buy more products.
  • Based on occasion/festival/seasonal.
  • Offering coupons, rebates etc.

Strategies for differential pricing method are as follows −

  • Value based price.
  • New pricing plans.
  • Versions.
  • Range of prices.

Advantages

The advantages of differential pricing methods are as follows −

  • Essential elements of the market are considered.
  • Increase in revenue.
  • Cost management.
  • Balance between selling and production is maintained.

Disadvantages

The disadvantages of differential pricing methods are as follows −

  • Due to various market factors.
  • Brand image.
  • Product and variants.
  • Multiple locations.
  • Seasonal offers (sometimes high, sometimes low)
raja
Published on 17-Jul-2021 16:30:45
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