Pricing C9: Segmented and Promotional Pricing Strategies

Pricing

a critical component of business strategy, influencing profitability and market positioning.

Pricing strategies

are critical for maximizing profitability and meeting customer needs.

Segmented and promotional pricing

allow businesses to target specific customer groups and influence purchasing behavior effectively.

Value-Based Market Segmentation

dividing a market into distinct groups based on the perceived value customers derive from a product or service; focuses on customers’ perceived value of a product or service, enabling businesses to set prices that reflect what different segments are willing to pay.

Customer segmentation

involves dividing a market into distinct groups based on shared characteristics, needs, or behaviors.

Demographic

Age, income, occupation

Behavioral

Purchase frequency, brand loyalty

Psychographic

Lifestyle, values, preferences

Needs-Based

Specific needs or problems the product solves

High-income buyers

Willing to pay a premium for exclusive features

Mid-tier buyers

Value reliability and brand but seek affordability

Entry-level buyers

Attracted to financing options or base models

Segmentation

ensures pricing reflects the value delivered to each group, avoiding a one-size fits-all approach.

Value sensitivity

refers to how responsive customers are to price changes based on their perceived value of a product; Segmenting helps businesses identify price sensitive vs. value-driven customers and tailor pricing accordingly

High Sensitivity

Price-driven customers (e.g., bargain hunters)

Low Sensitivity

Value-driven customers (e.g., loyal or premium buyers)

Price-Sensitive Customers

Prioritize low prices over features. Often found in commoditized markets (e.g., generic groceries).

Value-Driven Customers

Willing to pay more for quality, brand, or unique features. Common in luxury or specialized markets (e.g., tech gadgets).

Demand differential pricing

adjusts prices based on demand variations; Adjusting prices based on demand fluctuations

Geographic and location-based pricing

accounts for regional differences in purchasing power or costs; Prices vary by region due to cost of living, competition, or shipping costs; Prices reflect local market conditions, such as income levels or competition

Second-Market Discounting

Selling excess inventory or slightly altered products at a discount in secondary markets; Offers lower prices in secondary markets to avoid cannibalizing primary market sales.

Promotional pricing

involves temporary price reductions to stimulate demand, attract new customers, or clear inventory. These strategies aim to create urgency and drive sales but must be carefully managed to avoid eroding brand value or profitability.

Bait and Switch

Advertises a low-priced product to attract customers, then encourages them to buy a higher-priced alternative.

Loss Leader Pricing

Sells a product below cost to draw customers, who then purchase other profitable items.

High/Low Pricing

Alternates between high regular prices and deep discounts during promotions.

Markdown Strategies

Reduces prices on slow-moving or seasonal inventory to clear stock.

Everyday Low Pricing (EDLP)

Maintains consistently low prices to build customer loyalty and reduce promotional costs.

Segmented Pricing Model

tailors prices to different customer groups, market conditions, and demand patterns. It requires a deep understanding of customer value, competition, and cost structures