What is a differential pricing strategy?

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Profile picture for user Ángela de la Vieja

Ángela de la Vieja

There are as many different pricing strategies as there are needs, for Brands and eCommerce’s, and they are also as varied as the potential buyers they want to reach. When establishing dynamic price strategies, it is necessary to consider innumerable factors that all come together at the precise moment the decision to purchase is made.

Within pricing trends, dynamic pricing strategies are king, as far as the digital world is concerned. However, we cannot lose sight of certain, more traditional, options that continue to reinforce the adaptation of prices for each type of user, depending on their needs and their connection point with the brand.

This is the case for differential pricing strategies. Differential pricing forms a fundamental part of a dynamic pricing strategy since its principles are based, in essence, on fulfilling the same objective: to adjust the price of each product according to the changing characteristics of each user.

Differential pricing strategies seek to offer users the best price option enabling them to finalise their purchase. In what way are these adjustments carried out? There are several options, from adapting prices depending on geographical region, to the point of contact the user has with the online store.

One of the clearest examples of a differential pricing strategy is that of a specific promotion for a specific user segment. This type of approach can range from, examples like, opening a store at a new point to launching a product with an exclusive pre-sale price.

On the other hand, differential pricing strategies can be used while taking into consideration the state in which the user is with respect to their decision making. Some online stores already put this type of strategy into practice by analysing how many times the same user has consulted a product, if it has been added to their favourites, and if it is in the shopping cart, how long this product has passed in the cart until the transaction is completed, if it was finally checked out.

In these cases, the online store can choose to define a different pricing strategy for these users, offering them, at the right time, an improved price to attempt to ensure their purchase. Of course, in all cases the price has to be advantageous for the store, and not be excessively low in order to secure a purchase that, in the long run, will not be profitable for the business.

Analyse user states to define prices

A differential pricing strategy is based on the characteristics of each user at each moment in time, it seems that this is already pretty clear, but what should you take into account when establishing these user differences? The answer is as many elements as may be required. At this point the ability of the sales team to know and understand their target audience needs comes into play. Defining a good customer journey to define the pricing strategy is an essential step if we want the user to find the product they want, at any time, with the best conditions for their purchase.

To define how to group these different types of users it is necessary to identify the indicators that mark the differences between them. The results of this task will depend, in essence, on the particularity of the relationship between the audience and brand together with the characteristics of the target audience, which may vary according to the type of product, the purchasing process or market position.

Once the differential pricing strategy is defined, implementing it should be the key step in order to make the most of its benefits. With a pricing tool it is possible for any brand or online store to select each and every one of the factors that needs to be taken into account to adjust the prices of its products and to do it with total security, in an automated fashion and with expert advice.

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