To maximize the profit increase you can achieve through pricing, you must use some form of price segmentation. After all, not all customers have the same willingness to pay. Setting different prices for the same product/service means more people can buy from you, and you earn more revenue.
But is price segmentation fair?
Is it fair if we charge some people one price, and other people a different price? Think about your own experience: how do you feel when you pay one price, only to find out someone else bought it cheaper?
Looking Through a Closer Lens at “Fairness” When Price Segmenting
As it turns out, fair is in the mind of the beholder.
Each individual determines whether or not he or she has been treated fairly, since every person has their own sense of what ‘fair’ is. Now, there are some examples where it appears there is general consensus on what is and isn’t fair. Let’s have a look at some examples:
- Students getting into movie theaters at a lower price. – Fair
- Seniors getting cheaper coffee at McDonald’s. – Fair
- Vacation travelers paying less for flights than businessmen. – Fair
- Paying more for Coke on hot days than on old cold days. – Unfair
- Paying more to check your bags on an airline. – Unfair
As we think about these and other examples, there seem to be three criteria which makes something “fair.”
Three Fairness Rules In Pricing
- The different price is a discount to one group, not a surcharge to the other group.
- The pricing rules are transparent to the customers, and the customers have learned to play by them as they become more ‘normal’.
- The rules do not change. And if they do change, they change in the customers’ favor.
I’m personally still amazed when people are upset when the airlines charge more to check-in a bag, but they don’t complain when they have to pay for a meal. While it is to your benefit to segment your customers – and charge different prices – you should pay attention to the three rules above if you want to avoid creating a negative experience for your customers.Tags: pricing foundations