Segmented Pricing

Companies will frequently adjust their basic prices to permit for differences in customers, products, and locations. In segmented pricing, the company sells a service or product at two or more prices, although the difference in cost is not based on differences in costs.

Segmented pricing takes different forms. Under customer-segment costing, different type of customers pay different prices for the similar product or service. Museums, for instance, will charge a lower admission for senior citizens and students. Under product-form pricing, several versions of the product are priced in a different way but not according to differences in their costs. By using location pricing, a company charges different fee for different locations, although the cost of offering at each location is the similar. For instance, theatres differ their seat prices because of audience preferences for sure locations. At last, using time pricing, a firm varies its price by the season, the day, the month, and even the hour. Public utilities vary their cost to commercial users by time of day and weekend versus weekday. The telephone company which offers lower off-peak charges, and resorts provide seasonal discounts.

For segmented pricing to be an efficient strategy, sure conditions must exist. The market has to be segmental, and the segments have to show different degrees of demand. Members of the segment paying the lower cost should not be capable to turn around and resell the product to the segment paying the superior price. Competitors should not be capable to undersell the firm in the segment being charged the superior price. Nor should the costs of segmenting and inspection the market exceed the extra revenue got from the price difference. Of course, the segmented pricing has to also be legal. Most significantly, segmented prices should reflect actual differences in customers' perceived value. Or else, in the long run, the practice will be lead to customer resentment and ill will.