What is price discrimination?

What is price discrimination?

07/02/2021 - Pricing strategy

Price discrimination is the pricing strategy that you need to adapt the prices of your product at any time to the needs of potential buyers. But, what is the best option to introduce price discrimination in your dynamic pricing strategy? We will tell you all that you need to know. 

¿What are discriminated prices?

A discriminate pricing strategy consists in offering the same product at a different price depending on the user and the moment it is bought. This is a common practice in dynamic pricing strategies centered in personalization of prices to improve both the shopping experience of the user and the sales opportunities of an e-commerce.  

To carry out this type of strategy it is essential to know a data series of the potential buyer to adapt to their expectations of the prices at any time. So, it is essential to have the traceability of the user and to know, for example, how many times they have visited a product, if they have bought it before, the reoccurrence of buying on the general site or if, they have consulted the product on sale in another store. 

It is possible to know all of this information thanks to the already known monitorization systems and cookies, but also with its own experience based on the login, the area of the user and the personalized attention.

Price discrimination

Types of price discrimination

There exists different forms of applying price discrimination depending on the situation of the user before buying. Here are the three types of price discrimination.

  • Direct discrimination or first degree. This is the one based on the maximum price that the user is willing to pay for a product. They are monopolistic practices or of companies that offer a product or service very different from the rest. For example, its own technology or a service without competition in a specific area. 
  • Combined price discrimination or second degree. The e-Commerce offers more competitive prices before the purchase of a specific unit lot or a pack of different products together. 
  • Bias price discrimination or third degree.  This is applied directly to the different types of clients depending on their characteristics. Age, region, use of product… these are clear examples in the purchase of services like a plane ticket, a light rate for businesses, or even the sales of grocery products destined for hospitality in front of a particular final consumer. 

What should you keep in mind in a price discrimination strategy?

The first and most important is that your price discrimination strategy is fundamental in the real operation of user and that it should not be unjust for their pocket. Only then will it no be perceived as something negative, but rather as an award for completing determined requirements that, in certain occasions, will offer them advantages by buying. 

The second is that you should keep in mind the profit margins of your business. Offering great discounts that cannot be supported by your structure withing a poorly measured pricing strategy can encourage losses. Before doubting, it is always better to start little by little with a group of users and then extend the action to the rest. 

And finally, we strongly recommend that you  have a pricing optimization software to find out the effectiveness of every action, fluctuation, and change in prices. Only then will you obtain the security that you need for your online business. Have you already tried out all that Reactev can do for your business?

Category: Pricing strategy

Tags: ecommerce, pricing

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Angela de la Vieja
Content Manager

The first dynamic pricing solution designed by and for retailers