What Is Price Targeting? Definition of Price Targeting, Price Targeting Meaning and Concept
Price segmentation is the type of segmentation that consists of dividing the market according to the price that the consumer is willing to pay for a product .
Undoubtedly, the price is a variable that is not only defined by the company , but also by the consumer. A product is worth what the buyer is willing to pay. But since value is subjective, each customer is willing to pay a different price for the same product. For this reason, it is necessary to segment by price .
Of course, a company sets its prices based on production costs , the sensitivity of demand and the price of the competition. However, you cannot set a single selling price, because there will be a market group that will consider it cheap and another group will consider it expensive.
In effect, a company can sell a product at different prices. This, not because it has different costs, but because it has different groups of consumers. Each group or segment is willing to pay a different price.
Types of price targeting
The main types of segmentation based on price are:
1. By type of consumer
First of all, a different price can be applied according to the profile or behavior of the consumer. Also, because of their purchasing power. For this reason, it is necessary to know the client to understand him better. In the same way, you have to know the opinion you have of the product
Of course, each segment will be willing to pay a high or low price for the same product or service . For example, a person who travels on an airline for business and another who travels for vacation. Business travelers don't mind paying a high price. Now, the one who travels for vacations waits for the price reductions.
2. By place of purchase
Second, where-of-purchase targeting deals with people who live in a place other than where the product is made. Above all, if we talk about the international market, people are willing to pay an extra cost for the shipment that has to be made. It is called geographic differentiation pricing. It could be the case of a dentist who needs specialized equipment to provide his services.
3. At the time of purchase
Third, the different price for each segment applies when the same product or service is demanded by different buyers at different times. For example, a person who goes to the movies on weekends when demand is very high. While, other people prefer to go during the week when the demand is low and the price can be lower.
4. By quantity purchased
Fourth, in segmentation by quantity purchased, a different price is charged according to the quantity that is purchased. In this case we find:
- Volume discounts: Applies to consumers who are very price sensitive. The discount is made based on the total purchase made by a regular customer during monthly or annual periods. It does not apply for a specific amount at a given time.
- Discounts for orders: It is when a discount is granted when the consumer places a large order in a certain time. The larger the order quantity, the lower the price.
- Discount by stages: It occurs when the individual consumer is encouraged to buy more than one product. But, when buying the product in a single unit, there is no price reduction, so it is more expensive.
- Double price: It occurs when two independent rates are paid when a single product is consumed. In this case, the price charged is different if the payment is made in cash or by credit card.
5. By product packages
Fifth, product bundle segmentation sets different prices when the consumer buys for optional packages or value-added packages.
- By optional package: Aimed at groups of consumers who prefer to buy a package of products at a lower price. The price is higher if the product is purchased separately.
- Packages with added value : It consists of granting extra value to buyers who are less sensitive to price.
6. By bindings and counters
Finally, this form of segmentation is done so that the customer buys something that is linked to another product or service. For example, buying a car that includes accident insurance.
To finish, it can be said that segmentation by price can be a very effective strategy if there is enough information to better understand the characteristics of the customers. Above all, it should be considered that each person places a different value on each product, that each segment has different purchasing power and, therefore, a different level of demand.
It is important to consider that the costs of carrying out price segmentation are not higher than the income obtained. But, the most important thing is that segmented prices offer real differences in the value perceived by the consumer.