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    Price Structure

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    This document discusses different price metrics and price fences that sellers can use to charge different prices to different customer segments. Some key points: 1) Price metrics define the unit of exchange and should tie what customers pay directly to the value received. Performance-based and tie-in metrics link price to customer usage. 2) Price fences set fixed criteria to qualify customers for lower prices, such as age, student/senior status, or purchase location/time. 3) Identifying customer characteristics like hair length or purchase quantities can segment markets for easier price differentiation between perceived value segments.

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    Price Structure

    Uploaded by

    AM
    33 views13 pages
    This document discusses different price metrics and price fences that sellers can use to charge different prices to different customer segments. Some key points: 1) Price metrics define the unit of exchange and should tie what customers pay directly to the value received. Performance-based and tie-in metrics link price to customer usage. 2) Price fences set fixed criteria to qualify customers for lower prices, such as age, student/senior status, or purchase location/time. 3) Identifying customer characteristics like hair length or purchase quantities can segment markets for easier price differentiation between perceived value segments.

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    Price Structure

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    This document discusses different price metrics and price fences that sellers can use to charge different prices to different customer segments. Some key points: 1) Price metrics define the unit of exchange and should tie what customers pay directly to the value received. Performance-based and tie-in metrics link price to customer usage. 2) Price fences set fixed criteria to qualify customers for lower prices, such as age, student/senior status, or purchase location/time. 3) Identifying customer characteristics like hair length or purchase quantities can segment markets for easier price differentiation between perceived value segments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    33 views13 pages

    Price Structure

    Uploaded by

    AM
    This document discusses different price metrics and price fences that sellers can use to charge different prices to different customer segments. Some key points: 1) Price metrics define the unit of exchange and should tie what customers pay directly to the value received. Performance-based and tie-in metrics link price to customer usage. 2) Price fences set fixed criteria to qualify customers for lower prices, such as age, student/senior status, or purchase location/time. 3) Identifying customer characteristics like hair length or purchase quantities can segment markets for easier price differentiation between perceived value segments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 13

    Price Structure

    Prof. Shweta Jha


    One price point vs. multiple price points
    How can sellers charge different prices to different customers and for different
    applications?
    Price Metrics

    • Price metrics are the units to which the price is applied.

    • They define the terms of exchange - what exactly the buyer will
    receive per unit of the price paid.
    Criteria for evaluating price metrics
    Performance-Based Metrics

    • An ideal price metric would tie what the customer pays for a product or service
    directly to the economic value received and the incremental cost to serve
    Example: Internet ads are usually priced based on the number of “click-throughs”
    rather than the traditional metric for advertising: cost “per thousand” exposure
    Tie-ins as Metrics

    • A very common challenge for a company that sells capital goods is that the value
    of owning them can vary widely across segments based upon how intensely they
    are used.
    • A tie-in sale results from a contractual arrangement between a consumer and a
    producer whereby the consumer can obtain the desired good (tying good) only if
    he agrees also to purchase a different good (tied good) from the producer.
    Example: Razor and Razor Blades, printer and cartridge
    • Sometimes value differs between customer segments even when all the features
    and measurable benefits are the same.
    • Value can differ between customer segments and uses simply because they
    involve different “formulas” for converting features and benefits into economic
    values.
    • The difference may be tied to differences in income, in alternatives available, or
    in psychological benefits that are difficult to measure objectively.
    Price Fences
    • Unless there is a good “proxy” metric that just happens to correlate with the resulting
    differences in value, the seller needs to find a price fence: a means to charge different
    customers different price levels for the same products and services using the same
    metrics.
    • Price fences are fixed criteria that customers must meet to qualify for a lower price.

    Example: At theaters, museums, and similar venues, price fences are usually based on
    age (with discounts for children under 12 years of age and for seniors) but are
    sometimes also based on educational status (full-time students get discounts), or
    possession of a coupon from a local paper (benefiting “locals” who know more
    alternatives).
    Buyer Identification Fences:

    • Occasionally pricing goods and services at different levels across segments is easy
    because customers have obvious characteristics that sellers can use to identify
    them.
    Example: Barbers charge different prices for short and long hair because long hair
    takes more time to cut.
    Purchase Location Fences:

    • When customers who perceive different values buy at different locations, they
    can be segmented by purchase location. This is common practice for a wide range
    of products.

    Example:
    • Dentists, opticians, and other professionals sometimes have multiple offices in
    different parts of a city, each with a different price schedule reflecting differences
    in the target clients’ price sensitivity.
    • Many grocery chains classify their stores by intensity of competition and apply
    lower markups in those localities where competition is most intense.
    Time of Purchase Fences:

    • When customers in different market segments purchase at different times, one


    can segment them for pricing by time of purchase.

    Example: Theaters segment their markets by offering midday matinees at


    substantially reduced prices, attracting price-sensitive viewers who are not
    employed during the day at times when the theater has ample excess capacity. Less
    price-sensitive evening patrons cannot so easily arrange dates or work schedules to
    take advantage of the cheaper midday ticket prices.
    Purchase Quantity Fences:

    • When customers in different segments buy different quantities, one can


    sometimes segment them for pricing with quantity discounts.

    • There are four types of quantity discount tactics: volume discounts, order
    discounts, step discounts, and two-part prices.

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