When it comes to pricing, one size never fits all. Every product in your portfolio plays a different role; some drive profit, others attract customers, and some serve as strategic anchors. Yet, many businesses still rely on uniform pricing strategies that overlook these differences. The result? Missed revenue opportunities and inefficient pricing decisions.
Effective product segmentation enables you to differentiate pricing strategies based on the unique characteristics and performance of each product. In this article, we’ll explore how to identify the right segmentation attributes and how to group similar products for optimal pricing decisions.
To truly optimise pricing, companies must segment their products intelligently. This process helps you tailor pricing strategies based on the unique characteristics and performance of each product. In this article, we’ll walk through the two key steps:
- Identifying the right attributes for product segmentation.
- Grouping similar products for effective pricing actions.
Step 1: Identify Key Attributes for Product Segmentation
The foundation of effective segmentation lies in understanding what makes your products different. You can assign attributes to products based on various factors, from internal performance metrics to external market forces. Here are the five core attributes to consider:
1. Quality
Quality segmentation helps distinguish premium offerings from standard or basic ones. One effective framework is the Garvin Model, which evaluates products on eight quality dimensions:
- Performance: how well the product functions.
- Reliability: how consistently it performs over time.
- Durability: how long it lasts before replacement.
- Conformance: whether it meets specifications or standards.
- Features: what extra benefits or capabilities it provides.
- Aesthetics: its visual appeal or design.
- Serviceability: how easily it can be repaired or maintained.
- Perceived Quality: how customers subjectively rate its value.
You can rate each product across these dimensions (e.g., 1–10 scale) and calculate an average score. This score can then be used to classify products into quality tiers such as premium, mid-range, or economy: each with its own pricing strategy.
2. Profitability
Profitability segmentation focuses on financial contribution, how much revenue or margin each product brings in. You can classify products into:
- High-contribution products: strong profit generators deserving price protection.
- Moderate-contribution products: consistent performers with room for optimisation.
- Low-contribution products: items that may need strategic repricing or even rationalisation.
This approach gives pricing teams clear visibility into which products truly drive profitability versus those that drain resources.
3. Customer Demand and Popularity
Understanding which products are most popular or frequently purchased helps adjust pricing to match customer behaviour. High-demand products can sustain smaller margins due to volume, while niche items may justify higher markups due to exclusivity or specialised value.
4. Sales Velocity
This attribute measures how quickly products move through your inventory.
- Fast movers can be priced competitively to maximise volume.
- Slow movers might need higher markups or promotional pricing to improve turnover.
Velocity-based segmentation helps balance cash flow and inventory efficiency alongside pricing strategy.
5. Competitive Intensity
Finally, consider how crowded your market is. If you can monitor competitors’ pricing or scrape market data, you can segment products by competitive pressure:
- High-intensity markets require agile, data-driven pricing adjustments.
- Low-intensity markets allow more stable or value-based pricing.
This ensures your pricing stays responsive and strategic within each market segment.
Step 2: Group Similar Products for Optimal Pricing
Once your products are enriched with key attributes, the next step is to group similar products based on these shared characteristics. This creates clusters or categories that make pricing management more structured and actionable.
Example: Grouping by Financial Performance
Using profitability as an example, products can be grouped according to their margin contribution. A simple yet powerful method is an ABC analysis, or a variant with four groups, defined by margin contribution thresholds.
Visualise your portfolio on a chart from 0% to 100% margin contribution, and draw boundaries to create four categories:
- Group 1: Products contributing up to 10% of margin – low performers.
- Group 2: 10–20% contribution – moderate performers.
- Group 3: 20–80% contribution – the core product set driving most of your profits.
- Group 4: 80–100% contribution – top performers deserving premium pricing.
By creating these clusters, you can start linking them to customer groups, sales strategies, or discount rules. For example:
- Group 4 (top performers) could align with premium customers and lower discount tolerance.
- Group 1 (low performers) might be candidates for bundling, promotions, or discontinuation.
The outcome is a structured, data-driven segmentation that brings clarity, control, and confidence to your pricing decisions.
Segmentation is the Foundation of Smart Pricing
Segmentation isn’t just an analytical step: it’s a strategic framework that powers every pricing decision. By identifying meaningful product attributes and clustering similar items, you transform complex product portfolios into clear, actionable segments.
This enables your organisation to:
- Tailor pricing to value and competition.
- Protect margins on premium products.
- Improve turnover for slow movers.
- Align pricing strategies with customer expectations.
Ultimately, product segmentation leads to smarter, more profitable pricing and helps your business stay competitive in a dynamic market.
Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!
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