SEGMENTED PRICING (Chapter 9)

A form of Market Segmentation

Logic is based on differences among buyers in terms of -- costs,

price sensitivities and competition

Buyers and competition are not likely to be cooperative with

your price segmentation efforts

Some forms of segmented pricing may be illegal

Various mechanisms are available for price segmentation. We

will consider 7 of them
Mechanisms for Price Segmentation

1. By buyer identification

2. By purchase location

3. By time of purchase

4. By purchase quantity

Volume discounts
Order discounts
Step discounts
Two-part pricing
5. By product design

6. By product bundling

7. By tie-ins and metering

Price Segmentation by Purchase Quantity - Step Discounts

Exhibit 9.1 Step-Price Schedule for Electricity

6c
Price/KWH

4c

2c

100 200 350 KWHs/Month

Usage for Lights Usage for Heating Other Usage

and Appliances
 Price Segmentation by Product Bundling

Exhibit 9.3 Value of advertising space by two different segments

Morning Evening
Advertiser Edition Edition

Segment A (e.g., grocers, retailers) $1,000 $ 400

Segment B (e.g., theaters, restaurants) $ 700 $ 600

Attracting A & B without bundling = $1,100

Value for A = $1,400
Value for B = $1,300
Attracting A & B with bundling = $1,300
 Price Segmentation by Tie-Ins & Metering

Exhibit 9.4 Metered pricing (Xerox copier)

Meter rate per copy
from same original
Basic monthly Monthly meter Total monthly
use charge minimum minimum 1-3 4-10 11+
$50.00 $135.00 $185.00 4.6c 3.0c 2.0c
Total cost per month for 10,000 copies, 3 copies per original = $510.00;
total cost per month for 10,000 copies, 50 copies per original = $250.00

Type of Usage x Amount of Usage

Few copies Many copies

per original per original
 Importance of Segmented Pricing?

< Optimizes profit contribution by

appropriately capturing value to different
buyer segments

< Serves as an important competitive tool to

undermine your competition

< Implementation of segmented pricing

schemes may be difficult

< Successful price segmentation requires a

consideration of all the unique aspects of the
marketing situation