Price Adaptation Strategies and Marketing Management
Pricing strategy is a huge element of an overall marketing strategy. In some cases, companies establish a set price for a good or service that is constant across the business. However, some companies use adaptation strategies, which means different customers pay different prices in certain circumstances. This approach has some merits but also some marketing management risks.
One of the most common forms of adaptation involves the use of special pricing and discounts. A furniture store might offer free delivery to a customer who buys $1,000 or more in products, for instance, but not to one who only purchases $300 in goods. Similarly, a manager at one store may discount a product that doesn't sell well, but the other stores in the chain may maintain a constant price point. Coupon promotions are a common tool to discount for price-sensitive buyers without offering a promotional price to everyone.
Another common adaptation approach is geographical pricing. Instead of having a company-wide price, you set prices based on geographical factors. The costs of property, materials, equipment and labor can vary in different regions or countries. Thus, some businesses adjust prices to maintain a consistent profit margin. You might also price based on varying geographical demand for particular goods and services, and the income levels of customers in a particular marketplace.
Though the term itself sounds negative, discriminatory pricing is a fairly common adaptation strategy. With this strategy, you charge different prices to customers based on certain factors. Student discounts and senior citizen discounts are often used by companies to attract or cater to these particular customer types. Sports and entertainment venues routinely apply discriminatory pricing by charging different prices for seating for events. Airlines adjust ticket prices based on the timing of your purchase. Some companies also offer discounts if you buy goods or services in advance.
Bundle pricing means that your total price is based on how many products or services you purchase in combination, though individual prices are constant. A customer of a telecommunications company might pay less per service if he carries local, long-distance, mobile, Internet and digital television services with the same provider. Someone buying one or two services individually would likely pay more per service.
From a marketing management perspective, you have to weigh the long-term revenue, profit and customer-retention benefits and risks of each adaptation approach. In general, if a strategy alienates a sizable portion of your core customer group, it likely isn't a good idea. Many companies catch flack from existing customers when they offer better "new customer" incentives than were previously offered. Some companies accommodate upset customers to retain them, but they may still suffer some negative word-of-mouth advertising.