Segmented-based pricing is the process by which an organization subdivides its broader target audience into several smaller segments. This way you can identify several smaller sub-target groups from one target group. All these smaller segments can be classified according to specific properties or characteristics. As an organization you can set an individual price for all these different segments, to anticipate the differences in the willingness to pay.
One note: price segmentation only happens when the same product is offered for a different price to different customer groups, it should not be confused with product segmentation, when a slightly different product is offered for a different price.
You can use segmented-based pricing in several ways. It can bring a lot of advantages and lead to a more profitable pricing strategy. Here are the most common use cases.
The big advantage of segmented-based pricing is that organizations can improve their profit margin and revenue per target group. Instead of offering one average best price, organisations can offer the optimal price for multiple sub-target groups. This leads to a bigger overall target audience, as multiple price points speak to multiple different target groups. By doing this, companies are able to capture more value than in scenarios where only one price is offered.
A classic example of segmented based pricing is the ticket sales system of cinemas. Usually, cinemas have different prices for the same movie tickets for different people. Seniors, students and young children usually get a discount, while normal working adults don’t. This way, cinemas segment the broader target audience into smaller segments based on age. By offering discounts to different target groups, they make it more attractive for these specific to go watch a movie at the cinema.
Tableau is a data visualisation and analysis software tool that uses segmented based pricing. Tableau offers different licenses to different types of users, but if you want to access all the features, one has to pay up to €840. However, they offer the entire software package for free to enrolled students. Tableau does this to make students get used to their software, so that when they start working professionally, they are more likely to continue using the software and start paying for it.
Many B2B companies segment, based on the size of the purchasing company. Most often, larger businesses order larger quantities than smaller sized companies and in order to incentivize large orders, B2B often offer increasingly higher discounts for larger purchases.
Incorporating segmented-based pricing in your company can be a challenging task for companies with a wide variety of customers There are many variables to consider and it is really important to be careful when adjusting prices in order to not lose valuable customers. We suggest following these steps in order to successfully implement segmented pricing in your company:
Doing the segmentation for different target groups can be a difficult process since it is time-consuming and complicated. Furthermore, applying the prices to different customers correctly can be even more challenging and error-prone. That is why we have created the segmented pricing strategy in SYMSON. We suggest setting it up following these steps: