Explain the meaning of differentiated pricing. What are its types?
Differentiated pricing simply means different prices for the same product in different situations. It is the strategy of selling the same product to different customers at a different price. Differentiated pricing enables companies to profit from their customers’ unique valuations by offering different prices for the same product.
Such a pricing strategy is also called discriminatory pricing or multiple pricing. The prices under this method are based on the type of customer, quantity ordered, payment terms, delivery time etc. Under this strategy certain customers pay less for the same product than what others pay.
Differentiated pricing can be of the following types:
(i) Customer segment pricing – Different customer groups pay different prices for the same product or service, for example – entry fee of various i monuments is low for students.
(ii) Product form pricing – A product can be sold in various forms and styles and designs and accordingly prices are changed, for example – a half sleeves- shirt can cost from Rs.99 to Rs.999 depending on its style, design and fabric.
(iii) Image pricing – Some companies price the same product at two different levels based on image differences, e.g., Levis normal jeans are priced higher vis-a-vis Denizen jeans, which is a cheaper version of the same.
(iv) Channel pricing – Prices vary depending on the place where we buy the product. If a mineral water bottle is purchased in a five star hotel it will cost more.
(v) Location pricing – The same product is priced differently at different locations even though the cost of offering it at each location is the same. For example, breads cost less in Delhi rather than other states.
(vi) Time pricing – Prices are varied by season, day or hour. For example, restaurants introduce happy hours for customers at lower rates.
(vii) Other discriminations – Prices may vary depending on demand and volume of purchase, for example, vegetable vendors often have separate prices for 250 grams and 2 Kgs of vegetables.
