Last time, we explored Willingness to Pay. Today, let's take it further with Pricing Segmentation—using good/better/best models to optimize pricing.
Why Segment Prices?
Some customers are willing to pay more, while others may not—but we still want their business. Pricing segmentation allows you to charge higher prices to those who value your product more, and offer lower prices to price-sensitive customers, maximizing revenue and capturing more of the value you’ve created.
What To Do Next:
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Identify Differences in Willingness to Pay:
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Customer Characteristics: In B2B, segment by industry, region, or company growth. In B2C, consider demographic segments like students vs. seniors.
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Transaction Information: Analyze factors like purchase volume, lead time, cost to serve or availability (e.g., hotels charge more on Saturdays than Tuesdays).
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Customer Behavior: Consider how customers behave. Are they willing to jump through hoops for discounts? How aware are they of your brand and competitors?
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Craft Your Segmentation Strategy:
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Good, Better, Best Tiers: Offer tiered product versions that cater to different levels of customer willingness to pay.
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Standard Pricing with Targeted Discounts: Keep a consistent list price but offer discounts to specific segments based on their characteristics or behaviors.
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Freemium Model: Provide a free version of your product with premium features available for purchase via subscription. Transition advice here, and here.
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Complementary Upsells: Offer add-ons to those with higher WTP. For example, movie tickets have low margins, but popcorn has over 80%.
By understanding and segmenting your customers, you can craft a profit culture on your product team and a pricing strategy that better captures the value your product delivers. Now, consider what portfolio price changes you could make to unlock additional revenue and shape the future of your pricing.