Pricing

Pricing Minute: Price Segmentation

By Alex Hoff
August 28, 2014

Pricing is, or should be, closely tied to how your customers value your products and services. But, not all customers value your products the same way, or in the same amount.  These differences in willingness to pay mean that a “one-size-fits-all” pricing approach will leave you with sub-optimal prices and ultimately, less profit. By only setting one target price across the board, these companies are leaving money on the table in cases where the customer would be willing to pay more and are potentially losing business by letting customers walk away who would stay with a price that fit their needs.

Faced with a new pricing event, what you really need is to compare it with “similar” situations from the past to understand what the market will bear moving forward. But, how can you determine what constitutes “similar”? Segments guide you to what subset of history to use for comparison, which enables you to group together transactions that are characterized by a similar willingness to pay. This allows you to develop segment-specific target prices, which help your business to improve revenue and profits by more fully capturing the value that their customers perceive.

Watch this short video to learn more about the basics of price segmentation – why leading companies are doing it and how you can get started:

  • B2B Pricing , data segmentation , Price Optimization , price segmentation , price segments , pricing , segmentation , Target price

    Alex Hoff

    As a VP of Business Consulting with Vendavo, Alex Hoff works with Vendavo customers to help them drive significant value through price and margin management improvements. Alex has been with Vendavo for over seven years, working with customers in industrial manufacturing, process industry, consumer product manufacturing and business services. Prior to working for Vendavo, Alex worked in various marketing and pricing roles for Fortune 500 companies in transportation, retail/consumer goods and business services.