Everything you need to know about pricing discrimination

Learn more about price discrimination and how PricingHUB can help you implement an optimal pricing strategy. PricingHUB is a Pricing SaaS that helps you optimise your pricing using artificial intelligence to more easily achieve your business objectives.

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What is pricing discrimination?

Pricing discrimination means offering a different price depending on the demand for the product. The price is adjusted according to solvency criteria. The supplier then applies the price he thinks he can acquire with the demand in question, based on his willingness to pay.

The different types of price discrimination

There are various forms of price discrimination, each with unique characteristics and implications for both consumers and businesses.

Perfect discrimination or first-degree price discrimination

This type of price discrimination involves imposing the highest price a consumer is prepared to pay. This type of discrimination can be developed when the supplier knows that he is the only one to offer this type of product, or when the product is rather top-of-the-range and/or is only marketed by a few sellers. They can therefore afford to increase their prices without losing too much market share, since these customers will not find identical or comparable alternatives with one of their competitors. In this case, we could mention high-tech products such as Apple iPhones, which are sold at prices 1 to 3 times higher than they should be, according to the Canadian firm Tech Insights.

In this specific case, we need to understand that the company has to strike a fair balance between maximising its profit and the price elasticity of consumers.

Batch or second-degree discrimination

This type of price discrimination consists of lowering the price when demand buys in batches or in larger quantities. To illustrate this point, we can cite wholesalers who lower prices to buyers when they buy in larger quantities.

Discrimination by type of consumer

On the other hand, this discrimination is perceived much more negatively by consumers. It is based on criteria such as the prospect’s age or socio-demographic background, for example. Very specific groups of individuals are then created for whom the prices offered will be different. In the case of cinema tickets, for example, there is a price difference between adult tickets and children’s or student tickets.

Fnac Darty puts the customer at the heart of price definition

Find out how Fnac Darty measures consumer price sensitivity in order to adapt quickly to the market and anticipate changes.

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How do I set up a price discrimination strategy?

To implement a price discrimination strategy, the company needs to have sufficient market power, be able to segment consumers (using tracking tools to analyse the customer journey, for example), have a pricing tool to apply different prices to different groups of consumers, and be able to prevent the resale of its products by another group. This last point is important, because if the products are resold by someone else, the strategy could be badly perceived by consumers and therefore be counter-productive.

Why focus on the customer journey?

The customer journey enables us to identify loyal, potential, undecided, impulsive and other buyers. In this way, you can decide to apply higher prices to impulsive or loyal customers, who are more likely to buy your product at the proposed prices, and conversely to apply lower prices to undecided or potential buyers, who will be seduced by the tempting offer. This incentive to buy can also play a part in building a solid customer base, which can be an important opportunity for the future of your business and the application of other pricing strategies. By identifying a certain customer pathway, companies can identify their buying behaviour and segment their customer base.

Implement a price discrimination strategy with PricingHUB.

You want to implement a pricing discrimination strategy. Thanks to its AI, which automatically determines the price elasticity of each SKU, you can define the affordability price of each product. Our platform also enables you to segment your offer by product catalogue, point of sale, etc.

Determine the best pricing strategy using PricingHUB

What if price discrimination wasn’t the best option for your pricing strategy? Thanks to our pricing AI and our target-based pricing system, you can define your business objectives for a product portfolio. Beforehand, the artificial intelligence runs a series of tests for each product in the portfolio to determine the optimum price to achieve your objectives. You then have the option of accepting or rejecting these price proposals manually, or setting up a system of automatic rules.

In this way, you can define prices that may differ from those proposed by a price discrimination strategy, but that are more in line with your business objectives.

An example of a company that has put its trust in PricingHUB: La Fnac

Today, many companies have understood the value of our service and the benefits it can bring them. La Fnac is one of them. Since it decided to place its trust in our AI, its figures have risen spectacularly:
700,000 euros in additional revenue
+1% in turnover
+5% margin mass

So don’t wait any longer to unleash the full power of your pricing. Contact our team of experts now for a free demonstration.