Why Should a Company Opt for Differentiated Pricing?
The law of demand that is illustrated by the sloping curve lays down an important pricing principle. This states that some customers are ready to pay a higher price for a particular product or service as compared to other customers. Differential Pricing is the tactics in which same product is sold to different customers at different prices.
The example of an auction would be ideal for this type of pricing. In an auction all bidders are aware of the key benefits but yet keep quoting higher prices for that product. These bidders opt out at different stages because they feel that though others are ready to pay higher prices for the product, however they do not value the product as much.
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Types of Differentiated Pricing
There are two types of Differentiated Pricing that most companies offer. In one type of differentiated pricing, certain customers like students and senior citizens are provided subsidized rates. All customers are aware of this type of pricing and do not mind it, as they believe that the group of people who are getting this discounted pricing have a lower income.
There is another type of Differentiated pricing where in anyone is eligible to get certain discounts if they buy a coupon or wait for a sale. Best example of this type of pricing is in a cinema hall where everyone including people who have paid less for the cinema tickets by making use of a coupon, sit beside each other and watch the same movie.
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Advantages of opting for Differentiated Pricing
The biggest advantage of this type of pricing is the fact that it helps companies to expand their customer base.With this type of pricing a number of customers would try using your company product or service which they probably would not have done if the product or service would not have been offered at a discounted rate. This type of pricing also helps in making customers use the products or services offered by your company for the first time. If they like the experience then they would buy the services or the products later at their original price.
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