A GUIDE FOR PRICING STRATEGIES

Segmented-Based Pricing

What is it?

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.

How to use it?

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.

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THE GAINS

Benefits of segmented based pricing

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.

INDUSTRY TRENDS

Who is using it?

Cinemas

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

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.

Others

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.

The most common challenges pricing managers face today

  • Adjusting the prices for each of your current customers can be a complicated and lengthy process. It is error-prone and sometimes relies on too many variables. Using the smart AI price optimisation software of SYMSON you can set up the parameters for segmented pricing and it can segment your customers into different pricing groups automatically.
  • If you want to increase your prices due to various reasons, some of your customers can be discouraged and decide to stop buying your product or service. However, with the segmented pricing strategy in SYMSON, you can increase the price for each customer segment differently and keep the customers that do not have a high willingness to pay.
  • By offering your product or service for the same price to big and small customers you do not utilise your full pricing potential. With the smart price management software of SYMSON, you can segment your customers into groups according to their willingness to pay, then our software can adjust your prices and you can increase your revenue substantially.
THE DISADVANTAGES

Disadvantages and how to handle them

Attention is spread over multiple target groups

When having multiple price points for different target groups, the attention per group is diluted. To prevent this from hurting the organization, the different target groups should be accommodated separately.

Higher paying groups may feel disadvantaged

When certain target groups have to pay more, they can create a negative sentiment towards the organization. To prevent this from happening, segmentation should preferably be done on clear observable differences and be related to their buying behaviour.

Customers can resell

To prevent lower-paying target groups from reselling the products or services to higher-paying target groups. Companies should only segment when resell opportunities are limited or when the product or service is tied to a specific person.
HOW TO SET IT UP

How to implement Segment-Based Pricing

Implement in your organization

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:

Define customer groups with different buying behaviour
Segment customers on different metrics such as the size of the company, order size and region
Create price-lists for the different segments
Test the different prices gradually
Analyse the results and improve the prices
Apply to all customers

Implement in SYMSON

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:

Segment your clients according to order size, region and more
Make a secure data connection with your chosen systems to continuously update prices
Set up the prices for each of the segments
Apply business rules and knowledge to increase the effectiveness
Run the analysis
SYMSON will automatically apply the prices for all the groups

How to combine with other pricing strategies?

A segmented-based pricing strategy performs best when combined with other pricing strategies such as a competitor-based pricing strategy or a dynamic pricing strategy. A segmented-based pricing strategy can perform well in combination with a competitor-based strategy because you can make the prices of certain segments depend on the competition. If you offer segmentation based on the volume of units sold, you can look at what discounts the competitor gives for what volume. A segmented-based pricing strategy can also work in combination with a dynamic pricing strategy. Different segments will then respond differently to certain market changes, e.g. when costs rise, some segments will automatically get a higher price increase than others.
GET A DEMO

How to use Segmented-based Pricing in SYMSON

How it works
How to combine different pricing strategies
How to get recommendations for the perfect pricing
How to track competitors

Summary

  • Segmented based pricing is the process whereby a target audience is divided in smaller segments with their own pricepoints
  • The biggest benefit of segmented based pricing is that the different price points will lead to higher profits and revenues, when performed correctly.
  • Segmented based pricing performs best when combined with other pricing strategies and made dynamic with AI pricing software.

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