Practical Strategies For Price Discrimination

In my previous post I talked about price discrimination as a necessary option for getting your customers to self-differentiate, thus allowing you to charge different prices for different perceived value.  There are actually three major levels of price discrimination:
* First - Charge the maximum the customer is willing to pay - e.g. Auctions
* Second - Charge the same customer different prices for identical items -
   e.g. Bulk purchase discounts
* Third - Charge different prices in different markets - e.g. Money off vouchers given
   to a segment of your market

Once you understand this you'll start to see more, more ingenious examples being practised in many markets!

Professional Service Providers are ideally placed to implement first level price discrimination, not because they run auctions but because they can determine individual price elasticity at minimal marginal cost.  How?  Simply by asking the right questions in a sales conversation!

Professional Service Providers occupy a market that most sellers would die for - The ability to establish a price with each individual buyer at extremely low cost.

“Positioning yourself as 'cheaper' just because you have lower
  overheads is to be abhorred”

Professionals need to start taking advantage of this huge opportunity to move to first level price discrimination.  Can't you see how daft charging by the hour now sounds in this context?

In the general context, at the macro level, there are only three possible pricing strategies:
* Skim - Premium products at premium prices
* Penetration - 'Value engineered' products at lower prices
* Neutral - Mid range products at mid range prices

Note the absence of 'low' prices!  Too many Professionals assume they need low prices.  Low prices just attract low value customers which you'll come to regret!

So what strategy should Professionals adopt?  Whichever it is, it should certainly be based on value and not cost or time.
* Skim - More profit, narrower market
* Penetration - Not cheap but low priced relative to perceived value - Tends to be a
   default for established service companies
* Neutral - General default strategy

Positioning yourself as 'cheaper' because you have lower overheads is just cost-based pricing and is to be abhorred - In any case it's a penetration strategy.

Professional Service Providers should start with a 'neutral pricing' strategy but, if they offer high value services by challenging established practices which customers are fed up with, they would be under-pricing.  Professional Service Providers should be aiming at a 'skim pricing' strategy!

Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws_emp.co.uk.