I often say, “Price segmentation is the second most profitable pricing decision any company can make.” We posted this recently as a meme and a person I think is smart said he didn’t understand this one. This is for him (and you).
First, the MOST profitable pricing decision a company can make is to adopt Value-Based Pricing (VBP). VBP simply means, charge what a customer is willing to pay.
Let’s assume you have adopted VBP. You can’t do it perfectly, but you try. Here’s the question: Do all customers have the same willingness to pay? Of course not. What if you could charge more to buyers who are willing to pay more and charge less to those who are only willing to pay less so you can still win the business?
On the high end, you make more revenue and margin from those buyers who are willing to pay more. WooHoo! More profit.
On the low end, some customers may only be willing to pay less than your normal price. If you can sell to them at a lower price you win business you wouldn’t have won. WooHoo! More profit.
Remember, it’s impossible to read a buyer’s mind. You don’t know their true willingness to pay. But you can figure out who is less price-sensitive and who is more. You can implement pricing tactics to get closer to this goal.
My advice: Adopt Price Segmentation. Find ways to charge different prices to different customers. If you need help, reach out to me.
Now, go make an impact!