Pricing Strategies
A GUIDE FOR PRICING STRATEGIES
Segmented-Based Pricing
What is it?
Segmented pricing is the process by which an organization subdivides its broader target audience into several smaller segments. This way you can identify several smaller sub-target groups from one target group. All these smaller segments can be classified according to specific properties or characteristics. As an organization you can set an individual price for all these different segments, to anticipate the differences in the willingness to pay of the different segments.
One note: price segmentation only happens when the same product is offered for a different price to different customer groups, it should not be confused with product segmentation, when a slightly different product is offered for a different price.
How to use it?
You can use segmented-based pricing in several ways. This really depends on your use case. Let's give you some examples of how you could use it segmented-based pricing.
Increase revenue and profit
Attract a bigger target audience
THE GAINS
Benefits of Cost-based Pricing
Easy to calculate & implement
This pricing strategy requires very few simple calculations. The only thing you need to take into account are your costs, which you can divided between variable and fixed. Therefore, it is very easy to implement in comparison to other pricing strategies.
Covers all expenses
Making your prices based upon your costs ensures that you can always cover all your expenses per product sold. While other price strategies may require you to lower your costs in order to be profitable, this pricing strategy takes your costs as the cornerstone of your pricing.
Price increases can be justified
In some industries or markets, it is necessary to communicate why your pricing is as it is. With this pricing strategy, you can easily communicate price increases to your customers, since you can explain that your prices can rise based on the costs you have.
THE GAINS
Benefits of Competitive Pricing
Efficient and easy
If you have no clue about what your product is worth, you can copy the prices of competitors or substitute products, to offer a price that would likely work in the market.
Maintain market share
When you set your price at a certain point in comparison to the market, you can expect to maintain the same market share, when prices and demand stay constant, or even better, you can automate it for changes in the market.
THE GAINS
Benefits of segmented based pricing
The big advantage of segmented based pricing is that organizations can improve their profit margin and revenue per target group. Instead of offering one average best price, organizations can offer the optimal price for multiple sub-target groups.
This leads to a smarter target audience, as multiple price points speak to multiple different target groups. By doing this, companies are able to capture more value in comparison to scenarios where only one price is offered.
Using segmented pricing leads to:
Higher revenue
Happier customers
Increase in margin
Wider Target auidience
INDUSTRY TRENDS
Who is using it?
Cinemas
A classic example of segmented based pricing is the ticket sales system of cinemas. Usually, cinemas have different prices for the same movie ticket for different people. Seniors, students and young children usually get a discount, while normal working adults don’t. This way, cinemas segment the broader target audience into smaller segments based on age. By offering discounts to different target groups, they make it more attractive for these specific people to buy a ticket.
Tableau
Tableau is a data visualisation and analysis software tool that uses segmented based pricing. Tableau offers different licenses to different users, but if you want to access all the features, one has to pay up to €840. However, they offer the entire software package for free to enrolled students. Tableau does this to make students get used to their software, so that when they start working professionally, they are more likely to continue using the software and start paying for it.
Others
Many B2B companies segment, based on the size of the purchasing company. Most often, larger businesses order larger quantities than smaller sized companies and in order to incentivize larger orders, B2B companies often offer increasingly better discounts for larger purchases.
THE PAINS
Disadvantages and how to handle them
Attention is spread over multiple target groups
When having multiple price points for different target groups, the attention per group is diluted. To prevent this from hurting the organization, the different target groups should be worthwhile to accommodate separately.
Higher paying groups may feel disadvantaged
When certain target groups have to pay more, they can create a negative sentiment towards the organization. To prevent this from happening, segmentation should preferably be done on clear observable differences and be related to their buying behavior.
Customers can resell
To prevent lower paying target groups from reselling the products or services to higher paying target groups. Companies should only segment when resell opportunities are limited or when the product or service is tied to a specific person.
How to Implement Segmented Based pricing in your organization?
Incorporating segmented-based pricing in your company can be a challenging task for companies with a wide variety of clients. There are many variables to consider and it is really important to be careful when adjusting prices in order not to lose valuable customers. We suggest following these steps in order to successfully implement segmented pricing in your company:
HOW TO SET IT UP
How to implement
Implement Segmented pricing in your organization
Incorporating segmented-based pricing in your company can be a challenging task for companies with a wide variety of clients. There are many variables to consider and it is really important to be careful when adjusting prices in order not to lose valuable customers. We suggest following these steps in order to successfully implement segmented pricing in your company:
Define customer groups with different buying behaviour
Segment customers on different metrics such as the size of the company, order size and region
Create price-lists for the different segments
Test the different prices gradually
Analyse the results & Learn
Apply to all clients
Implement Segmented Pricing in Symson
Doing the segmentation for different target groups can be a difficult process since it can time-consuming and complicated. Furthermore applying the prices to different clients correctly can be even more challenging and error-prone. That is why we have created the segmented pricing strategy in SYMSON. We suggest to set it up following these steps:
Segment your clients according to order size, region and more
Set up the prices for each of the segments
Apply business rules and knowledge to increase the effectiveness
Run the AI and Machine Learning analysis
Analyse the results & Learn
SYMSON will automatically apply the prices for all the groups
HOW TO SET IT UP
How to implement
Implement Competitive Pricing in your organization
Positioning your prices in your competitive landscape is challenging, because of the constantly changing market, conditions, and prices. Using tools like Symson really helps you to get insights into this pricing landscape. But the question remains for you as a company, how you should implement such a strategy. In order to do so, we recommend following these steps.
Create a Pricing plan
Get Stakeholders involved
Configure your pricing algorithm & define business rules.
Test with small groups
Analyse & Learn
Re-run this process
Implement Competitive Pricing in Symson
Define the logic in the Symson platform to get the prices of your competitors. You could decide to configure a list of your top 10 key- competitors. Symson can get all the pricing data from Google Shopping or specific imports or website scrapers can be used to get the prices of your competitors.
After this is configured you can configure your price position to your competitors. You could be the cheapest, most expensive compared to number xx in the market, but you could also add manual business rules, or use logic from other strategies in order to get your perfect price.
Why combine with other pricing strategies?
A segmented based pricing strategy performs best when combined with other pricing strategies. It can be most effective in combination with a competitor based strategy because you can make the prices of certain segments depend on the competition. A segmented based pricing strategy can also work in combination with a dynamic pricing strategy. Different segments will then respond differently to certain market changes, e.g. when costs rise.
Dynamic Pricing
Learn MorePrice Elasticity Pricing
Learn MoreCompetitor Pricing
Learn MoreGeographical Pricing
Learn MoreGET A DEMO
How to use Segmented-based Pricing in SYMSON
How it works
How to combine different pricing strategies
How to get recommendations for the perfect pricing
How to track competitors
Summary
- Segmented based pricing is the process whereby a target audience is divided in smaller segments with their own price points.
- The biggest benefit of segmented based pricing is that it can lead to higher profits and revenue, when performed correctly.
- Segmented based pricing performs best when combined with other pricing strategies and made dynamic with AI pricing software.
The SYMSON Solution
Smart Algorithms
Use smart algorithms and intelligent pricing AI to predict optimal price points for your products automatically.
Every business case is unique and each pricing strategy is based upon different factors, which can be influenced by high inflation rates. Smart algorithms and AI are able to predict the most optimal price points for different products automatically, by using multiple data sources such as costs, weather, competitor prices, price elasticity, and more.
Every business case is unique and each pricing strategy is based upon different factors, which can be influenced by high inflation rates. Smart algorithms and AI are able to predict the most optimal price points for different products automatically, by using multiple data sources such as costs, weather, competitor prices, price elasticity, and more.
SYMSON
SYMSON uses its in-house developed dynamic pricing software to optimise margins and to automate mundane tasks for pricing professionals. Get insights in your pricing management – from price elasticity per product to margin improvement advice and price automation with the Pricing Strategy Builder. For most companies, it would be advisable to look into cost-based pricing and price elasticity, to combat high inflation rates. However, every business case is different, and at SYMSON we provide custom solutions for all of our clients.
