Contents
- What is price discrimination?
- What is the purpose of price discrimination?
- What are the types of price discrimination?
- When is price discrimination possible?
What is price discrimination?
Price discrimination is a pricing strategy where the same product is offered to different buyers at different prices. It is important to note that the price differences do not depend on the costs incurred by the seller in producing or delivering the product. For example, if the cost of delivering and producing a product in Russia and the Czech Republic is 100 rubles, but the price of the product is 200 rubles in one country and 500 rubles in the other, this can be considered price discrimination. However, if the price difference is explained by higher production and logistics costs in the Czech Republic, then it is no longer discrimination.
What is the purpose of price discrimination?
The main goal of price discrimination is to maximize profit from each customer. With the same price for all buyers, some may find the product too expensive while others are willing to pay more. For instance, a set of simple pencils for children may cost 150 rubles, but a wealthier customer might pay 500 rubles for it. By offering the product at a fixed price, the seller misses the opportunity to earn additional revenue. Similarly, brides may be willing to pay more for wedding makeup than regular clients do for evening makeup.
Moreover, price discrimination helps attract a broader audience. Lowering prices can make the product accessible to customers who could not afford it at a higher price. At the same time, increasing prices may attract buyers who perceive low cost as a sign of low quality. For example, in clubs and bars, women are often offered free entry while men have to pay. This is done to attract more women and create a more balanced crowd.
What are the types of price discrimination?
First degree
This form of price discrimination involves setting an individual price for each buyer. Although this approach is quite rare, it can be implemented in the B2B sector, where sellers have the opportunity to study their clients and their needs. For example, marketing agencies may offer different rates for their services based on the size and success of the client company. In local markets where sellers know their customers well, such practices are also present.
Second degree
In the second type of price discrimination, the price of the product varies depending on the volume of purchase. For instance, buyers may receive a lower price when buying in bulk, as it is more profitable for sellers to sell a larger quantity of goods rather than a single unit. This allows sellers to set different prices for different purchase volumes.
Third degree
In the third type of price discrimination, different groups of buyers receive different prices based on certain characteristics. The most common criteria include:
- Location: Products may be sold at different prices depending on the region.
- Age: Discounts are often offered to schoolchildren, students, and seniors.
- Interest: Items that generate high interest may be sold at a higher price, while less popular goods become more affordable.
- Wealth: In the past, some companies used strategies based on the social status of the customer.
When is price discrimination possible?
For price discrimination to be successfully implemented, it is necessary that buyers do not have the ability to resell the goods. For example, if the same product is offered at different prices on different platforms, there may be resellers who will buy items at lower prices for further resale. In this context, price discrimination is more applicable in the service market, where resale is not possible. However, this also depends on the specifics of the niche. For example, in the case of fast food, products cannot be resold due to spoilage. Museums protect against ticket resale by requiring documentation that confirms the right to a discount. It is important to remember that high competition may also reduce the likelihood of successful price discrimination, as customers prefer to choose companies with transparent pricing policies.