Price discrimination is the embodiment of price intelligence since it uses machine learning along with the characteristics and pre-purchase behaviour of the users to determine what price will be shown. What benefits does this offer and what examples can your eCommerce business follow?
What does a price discrimination strategy consist of?
Price discrimination adapts the price to any type of customer at any time, based on the user’s behaviour. Depending on the prism that you want to look through, this is just one of the applications for the already famous dynamic pricing, which allows you to change the prices of each product in your catalogue based on the parameters set by the brand.
The fluctuations in price discrimination aim to achieve the maximum profits in the purchase process by using the customer as the trigger. How? By generating tangible differences between one shopper and another, using their purchase ratio, demographic characteristics, and democratising the price shown based on their situation. This makes it possible to generate a strategy that’s not only different, but that’s also based on personalised pricing.
3 examples of price discrimination
There are three classic types of price discrimination that result in different examples of strategies that can be put into play without being unfair to the customers. This means that not all strategies have to be tied to fluctuation that the user can’t understand. Let’s look at three examples of price discrimination:
- Perfect discrimination. This is the maximum price that the consumer is willing to pay. This isn’t only a question of what they would willingly pay, but, to a certain extent, what they would be obliged to submit to due to the nonexistence of other options in the market. This can happen with medicine or other high-end products that aren’t marketed by other sellers or manufacturers, like with the iPhone, for example.
- Batch discrimination. This is the most democratic version and as simple as paying less the more you buy, or even based on the type of user. For example, buying from a larger retailer as an individual isn’t the same as doing so as a company that needs a greater number of units of the same product.
- Discrimination by user type. In this case, the characteristics of the consumer that will be using the products are taken into direct consideration when choosing one price over another. Here again, the example of professional consumer sales arises (for example, the price for internet in a household is different from the price for an establishment), or age when selling tickets for performances, where children always pay a reduced fee, could be repeated.
What do you need to implement a price discrimination strategy?
To implement a price discrimination strategy, you only need three elements:
- A pricing tool. You’ll need a pricing tool, like the one from Minderest, to implement price automation based on the parameters that you identify.
- The customer journey. To define these parameters, you must know the phases that the customer passes through during their decision-making process as well as afterwards. It’s essential to define the correct customer journey based on your pricing strategy.
- Monitoring technology. With the help of pixels, cookies, and other tracking systems, you’ll be able to trace the actions of your users to identify them and mark them as milestones.
So, when it comes time to establish a price discrimination strategy, regardless of the percentages that you want to work with, you must establish a sequence of milestones to be reached by a user that will lead to the appearance of one price or another.
User milestones in a price discrimination strategy
- Repeat visits to the same product sheet
- Already registered as a user
- Repeat purchases
- Cart abandonment
- Recently purchased another product
- Purchased and returned a similar product to the one visited
- Region they’re visiting from and the buying habits of their demographic
Price discrimination strategies can be a solution that can be adapted to your personalised pricing strategies, but they need to be carried out with caution and, above all, using margins set using common sense.