AMC theaters can observe the consumer-type using his student ID, seniors
» Customer 1
No student ID
$6.75
» Customer 2
Haas student ID
$4.75
» Customer 3
Haas student ID
$4.75
» etc.
Ganesh Iyer
4
Price Discrimination
Purchase Location
Consumers at different purchase locations have different price sensitivity
Cure for anthrax: $450 in the U.S. $190 in Canada http://www.canadadrugs.com Staples website asks for zip code http://www.staples.com/
Select segmentation variables that ensure
different segments purchase at different locations
high enough shipping cost to prevent arbitrage
Ganesh Iyer
5
Customize By Time of Purchase
Peak-load pricing: designed to re-distribute usage from peak time to off-peak time
Redeye flight.
Electronic road pricing.
Ganesh Iyer
6
Electronic Road Pricing
Ganesh Iyer
7
Price Discrimination
Palm Pilot: Product-line in Action
Palmm505 Palmm500 Palm VIIx
$399
Color
$399
$449
Palm Vx
$299
Palm IIIxe
$179
Palm m100
$129
Ganesh Iyer
8
Microsoft Office:
Product Line (Versioning) in Action
Office 2000
Developer
Office 2000
Premium
Office 2000
Small Business
Ganesh Iyer
Office 2000
Professional
Office 2000
Standard
9
How to Price Discriminate Using through Product
Line Design?
Key to Successful Versioning
Identify the best ways to distinguish the different versions of the product/service Need to determine which features will be highly valuable to some customers but of little value to others.
Goal: Create the “right” # of versions -- targeted at the “right” customer segments by setting the “right” prices.
Strategic Issue -- Cannibalization: Will the high-end customers buy the higher priced version? How to dissuade them from buying the lower priced version?
Ganesh Iyer
10
Product Line (Versioning)
Segmentation, Targeting & Cannibalization
Example 1: Pricing Dell Laptops
Table: Perceived Economic Value
Personal Users
Business Users
Segment Size
60
40
Dell 350 MHz
$ 500
$ 750
Dell 550 MHz
$ 750
$ 2500
Ganesh Iyer
11
Product Line (Versioning)
Segmentation, Targeting & Cannibalization
Example 1: Pricing Dell Laptops
Option I: Dell 350 MHz only:
Targeting: Business Users
– Price $ 750
– Total Revenue $ 30,000
Targeting: Business Users & Personal Users
– Price $ 500
– Total Revenue $ 50,000
Ganesh Iyer
Optimal targeting if introducing 350 MHz: Business Users + Personal Users
12
Product Line (Versioning)
Segmentation, Targeting & Cannibalization
Example 1: Pricing Dell Laptops
Option II: Dell 550 MHz only:
Targeting: Business Users
– Price $ 2500
– Total Revenue $ 100,000
Targeting: Business Users & Personal Users
– Price $ 750
– Total Revenue $ 75,000
Ganesh Iyer
Optimal targeting if targeting 550 MHz: Business Users
13
Product Line (Versioning)
Segmentation, Targeting & Cannibalization
Option III: Both 350 MHz & 550 MHz :
What will be the price of 350 Mhz = 500
What are the options available to Business Users?
Buy 350 MHz at $ 500 or 550 MHz at $ X?
Surplus from 350 MHz = $ 750 - $ 500 = $ 250
Thus, price of 550 MHz
