Definition: The Differential Pricing is a method of charging different prices for the same type of a product, and for the same number of quantities from different customers based on the product form, payment terms, time of delivery, customer segment, etc.
The companies adopt the differential pricing method with an objective to maximize the profit of an organization. This strategy is also known as discriminatory pricing or multiple pricing.
The companies can charge different amounts from different customers considering the following basis:
- Customer-Segment pricing: Different group of people pays different prices for the same kind of a product on the basis of a segment they belong to.
E.g., In any government examination, the form fee varies for the general category people and the other backward class people.
- Image pricing: The companies can charge different prices for the same kind of a product on the basis of an image, a product enjoys in a market.
E.g., cosmetics and clothing brands are the best examples.
- Product-form Pricing: Different prices charged for different variants of the same product.
E.g., The price of the same type of a car may vary because of different color and add-on features.
- Location Pricing: The companies charge different prices for the same product on the basis of different locations where it is offered.
E.g., In movie theaters the customer pays different amounts for the different locations from where they can watch movies.
- Time pricing: The price of a product varies with the time, such as the price charged is less in the off-season as compared to the season time. Also, the movie tickets for the matinee show is less as compared to other show timings.
The companies can apply this pricing method by following any of the strategies viz. Charging a separate price to customers on the basis of their intensity of demand, Charging less from the buyers who consumes in bulk, or charging different prices for a different class of buyers.