Is geographic pricing fair for e-commerce?


Price differentiation, also known as price discrimination, enables higher profits to be achieved in B2B product sales. The basic idea behind it: Although the products your company offers on the market are always produced at the same cost, they are sold to customers at different prices.

The reason for this is the heterogeneity on the market. Your customers' wishes, requirements and willingness to pay are only partially uniform. Price differentiation is therefore a popular means of pricing that is accepted by the customer.

What forms of price differentiation are there?

The phenomenon of price differentiation can be divided into different forms in the theory of price policy. Functional differentiations in pricing are spatial, temporal, personal, qualitative or quantitative demarcation and bundling as a special form. It is not uncommon for mixed forms of these types to be used in a company's price differentiation strategy.

Spatial price differentiation

A spatial and geographical subdivision of the price is important for supra-regional, national and international companies. With this form of price differentiation, you can, for example, follow the north-south or east-west divide within Germany or the different income levels of cities and regions. Another possibility of differentiation exists when selling on domestic or international markets.

Temporal price differentiation

Make your prices dependent on the time of the product purchase! Temporal price differentiation is mainly known from the B2C area, but with the right price differentiation strategy it is also successfully used in the B2B area. Product prices are varied, for example, according to seasons, seasons or economic fluctuations. The pricing can also be made dependent on how long the product has been on the market.

Quantitative price differentiation (in terms of quantity)

Targeted and efficient: The price of the product is broken down according to the amount purchased by the customer. The buyer receives a discount for his purchase quantity, whereby the tiered prices can be implemented with the help of discounts, bonuses or premiums, for example.

Qualitative price differentiation (performance-related)

If you offer your products in slightly different versions, a price differentiation based on their quality is possible. Different design variants appeal to different customers and customer groups - a slight product differentiation in combination with differentiated prices thus harbors high potential for the optimal exploitation of willingness to pay.

Personnel price differentiation

The personal price differentiation is established on the basis of an accurate customer segmentation. With this form, the product price is based on the specific characteristics of the customer. The extent to which the personal price differentiation makes sense in the B2B area should be checked extensively in advance.

Bundling (price bundling)

The price-oriented bundling always entails a bundling of products. Several related products are offered as a package for a total price, whereby the individual products are also available individually. A price differentiation with this form strengthens the customer loyalty that is important in the B2B area.

How do I determine the appropriate price differentiation strategy?

A functioning price differentiation strategy always requires a coherent market and customer segmentation. Together we identify the different customer groups based on their willingness to pay and then separate them from one another.

Our goals, which we achieve with the price differentiation strategy for your company:

  • Avoidance of negative arbitrage effects (the products should not be transferable)
  • Creation of a price differentiation that is understandable and fair for the customer
  • Inclusion and use of various distribution channels
  • Strengths of relevant customer segments
  • Achieve the highest possible profits

Whether a price differentiation is perceived by customers and interested parties as fair depends on the associated pricing strategy and implementation. The demarcation between the customer segments must be clear and the customer must not leave any loopholes for doubts (fencing). In the best case, there is no or only limited communication between the customer segments.

The potential of a well thought-out price differentiation strategy is immense - but on the other hand, the possible obstacles must also be considered. Before developing and aligning the price differentiation, we therefore open up the opportunities and risks of implementing such a strategy with a SWOT analysis workshop.

What negotiation method can I use to find out whether the customer is willing to pay?

Especially in the B2B area, customer-specific negotiations play an important role in the field of price differentiation. If, after analyzing and weighing up the advantages and disadvantages, differentiating the prices in your company is a promising measure, it must be implemented. This also includes the right negotiation methodology.

Don't go into bluffing and haggling from customers - you are not a seller at a flea market, after all.

The aim is not to name any specific digits or “anchor numbers”. Stick to the open numbers and row back if necessary to show the customer how important they are to you - but keep the conversation going.

Are price negotiations with customers still a problem in your company? You and your employees learn to negotiate successfully in the practice-oriented training courses and seminars on price negotiation and price management from pn consult - throughout Germany!

Introduction of an effective price differentiation

The price differentiation strategy is one thing, but its implementation in the price policy is a completely different matter. Without implementation, even the best strategies are nothing more than airy business administration terms.

It is therefore important to work on the basics with specific measures:

A restructuring of parts of the marketing is necessary, as well as the further control and steering of the strategy through suitable criteria in the controlling. Discover differentiated prices as a lever for sales and use the advantages!

Examples from lived practice for the use of different product versions for profitable price differentiation

Example I:

A manufacturer of automatic central lubrication systems only offered its systems as a high-priced "heavy-duty version" and as a more economical "standard solution" due to the different distributor designs used in conjunction with more cost-effective lines and fastening and protective material. This enabled an entry-level price to be realized that was always competitive and the significantly more profitable system could be sold to most OEMs via professional up-selling.

Example II:

A manufacturer of linear scales for precise length measurement has offered his scales in the commercially available qualities. The graduation was 1/10/20/40 thousandths of a millimeter.

Due to the in-house production of the rulers, the quality levels were generally much better manufactured. With the same manufacturing process, two identical products with different item numbers and prices could be offered. The standard product was sold under the usual commercial quality - without a protocol on quality - at normal market gross prices. The higher quality scale with higher accuracy always received a measurement protocol and a price surcharge of 15%. This pricing model has proven itself excellently in international business with dealers.

The international practical experience makes pn consult your reliable contact for projects in pricing in general and price differentiation in particular. We advise you in detail on the subject of pricing policy and negotiation - from price management seminars to strategy development to increasing the efficiency of your sales - based on 5 fields of action - your sales management consultancy!

Contact us now for a non-binding initial consultation!