Price discrimination is a complex pricing strategy that can be used to extract as much value as possible from your customer base while considering differences in willingness to pay and market conditions. However, several factors need to be considered before employing this strategy.
The strategy can easily be seen as untrustworthy for your consumers because of the different price points. When the price changes based on things other than demand and market conditions, consumers often think the strategy is unfair and, therefore, are not willing to buy the product from you.
On the other hand, consumers have accepted real-time pricing in the past years. The reason is that since the price follows the demand, it is only sometimes necessary to be more expensive than the last time they looked; sometimes, they also find a better deal. Businesses worldwide use this strategy to stay competitive by monitoring its competitors. A tool that can help implement this strategy in the best possible way is PriceShape. This pricing tool will provide all the necessary information concerning that market, your competitors, and their prices. Making it easier for you to get the best price possible.
What is the difference between Real-time pricing and Price Discrimination?
Okay, we've explained how Dynamic Pricing, or Real-time pricing, works and why it benefits your e-commerce business. But what is the difference between Dynamic pricing and Price Discrimination?
These two terms often need clarification. Therefore, this blog post tells you exactly the difference and what is essential for you to be aware of when using these two terms in your pricing strategy. In the meantime, if you know how dynamic pricing works, you can read more about it by clicking here.
What is Price Discrimination?
Price discrimination, or differential pricing, is a pricing strategy in which businesses charge different prices to different customers for the same product or service. This differentiation in pricing is based on the seller's assessment of what each customer is willing to pay.
Price discrimination is not a binary practice; it encompasses a spectrum of approaches. The ideal form of price discrimination would involve charging customers the maximum price they are willing to pay, which is rarely achieved in practice. We have created an example of how a business can use price discrimination when setting its price. The example will look into Airline ticket pricing.
Imagine you're planning a trip, and you're in the process of booking a flight. Airlines often employ both dynamic pricing and price discrimination strategies, and this scenario will help you understand the distinction between the two.'
Dynamic Pricing:
Dynamic pricing is the practice of adjusting prices in real time based on various factors like demand, availability, and timing. Airlines frequently use dynamic pricing to optimize revenue.
Here's how it works:
Suppose you and your friend decide to book a flight from New York to Los Angeles for the same date and time. You start searching for tickets online and notice that the price for a particular seat increases every time you return to the airline's website. This is an example of dynamic pricing. The airline's website continuously adjusts ticket prices based on demand and other factors. If many people are looking to book the same flight and seats are filling up fast, the price may increase to take advantage of higher demand.
Price Discrimination:
Price discrimination involves charging different prices to customers for the same product or service. Airlines often use price discrimination to maximize their profits by segmenting the market into different groups of customers.
Here's how it works:
While booking your flight, you might discover that the person beside you paid a different price for the same seat. This is an example of price discrimination. Airlines classify passengers into various groups, such as business travelers, leisure travelers, and price-sensitive travelers. They then charge different prices to each group based on their willingness and ability to pay. Business travelers, for example, are typically willing to pay more for last-minute flexibility, while leisure travelers may look for cheaper, non-refundable fares. Price discrimination allows the airline to extract more revenue from different types of passengers.
In this example, dynamic pricing adjusts the ticket price in real-time based on demand and timing. In contrast, price discrimination involves charging different prices to customers based on their characteristics or behaviors.
Use dynamic pricing for your advantages
PriceShape helps you implement dynamic pricing in the best possible way. This ensures that you always stay competitive against your competitors and do not set your prices unnecessarily low. Are you interested to learn more about how PriceShape can help you?
