Strategy of Pricing
Customers Have Different Pricing Needs
In virtually every facet of business, companies develop strategies based on the truism that their customers differ from each other. Diverse customers are courted with a variety of products (different styles, colors, add-ons), a mix of marketing strategies, and multiple distribution points. However, when it comes to pricing, most companies behave as though their customers are identical by setting just one price for each product.
The epiphany to better pricing is to understand - actually to embrace - the same insight that companies use to create strategies and profit in other areas of their business: a wide variety of customers are interested in buying their product. And these customers differ from each other. These differences are what make pricing a creative business strategy instead of a search for one "perfect" price.
The strategy of pricing involves acknowledging that customers have different pricing needs and then making efforts to profit from these differences. Customers differ in three primary manners:
- Desire a different pricing plan. Some customers don't like a particular pricing plan (instead of owning outright, they prefer to lease, for instance). The strategy of pick-a-plan which involves offering new pricing plans to serve new customers.
- Have unique needs or value a product differently. Versioning involves offering a series of slightly different products based on one core product. These versions are profitable for two reasons. First, products can meet unique customer needs. Poland Spring water sells a series of different product sizes to meet its customers' unique needs. Its delivery service of 5 gallon water bottles (which sit on top of freestanding water cooler bases) serves businesses and families. 2.5 gallon jugs sold at grocery stores are meant to be kept in home refrigerators for daily use. And its sixteen ounce bottles, often sold at convenience stores, can quench thirst on the run. Second, versions serve and profit from customers with different valuations. Offering good, better, and best products (accompanied by good, better, and best profit margins) allows customers to choose the version that best fits their valuation and allows a company to profit accordingly.
- Value a product differently. As discussed above, customers value products differently than others. Differential pricing is the strategy of charging different prices to different customers for the same product.
Key Customer Differences and Associated Pricing Strategies