Differentiated Pricing
Overview
Differentiated pricing is a strategy to optimize profits by charging different prices for the same product. The intuition for
differentiated pricing starts by realizing that every customer has a different
reservation price,
that is the maiximum amount that a given customer is willing to pay for a product.
Ideally, marketers would like to charge each customer their reservation price for a product. That is, if a marketer had a crystal
ball and could see the reservation price of every customer, she would raise the price of her product to just under that customer's
reservation price before selling it to her.
Unfortunately, there are no magic crystal balls that can provide this information. However, it may be true that one could
measure an average reservation based on a given set of measurable customer dimensions.
For products that customers are likely to buy more than one of, differentiated pricing begins with the understanding that
each customer has her own demand curve, that is, set of prices for which she would purchase a given quantity of product for.
Pricing Dimensions
Differentiated pricing requires a set of dimensions along which to vary the price. Common dimensions include :
