Economists are not good marketers otherwise they would not have named the greatest profit maximization scheme to date as Price Discrimination. The word discrimination evokes so much negative feelings that it is hard to justify price discrimination is legal, ethical and fair. If general discrimination is treating different people differently based on demographic or psychographic characteristics, price discrimination is charging different people different prices based on value they get and their willingness to pay.
Since finding each customers’ true willingness to pay is impossible the next best options are:
- Equating customer’s wherewithal to pay to their willingness to pay – for example giving student and senior citizen discounts. It is the same product but based on verifiable external criteria different customers are charged different prices. While this is termed third degree price discrimination, marketers who implement this have a better term for this – “discount” for one class and a “surcharge” for another.
- Delivering multiple different versions (products that vary in different dimensions) at different price points and letting customers self-select themselves to the right version. This is the second degree price discrimination and after rebranding it is called versioning.
Still the practice of charging different customers different prices still causes considerable outcry in the news media and in the social media. Most price discrimination schemes end up using demographic variables which further aggravates the situation. It is hard to even classify good and bad price discrimination. In fact, price discrimination makes it possible for certain customers to avail themselves of products and services that would not have been possible with a single price. For example, this is a story from NYTimes on pharma companies selling branded generics at lower prices:
As a result, some drug makers are pursuing a two-tiered strategy in developing markets: selling their own lines of more expensive name-brand products to the more affluent, as well as offering midpriced branded generic lines that include prescription and over-the-counter medicines for the broader market.
“We are able to create different tiers of products at prices they haven’t previously seen with our stamp of approval,” said Andrew P. Witty, the chief executive of GlaxoSmithKline.
What we need, I think, is a new brand for Price Discrimination, to move way from its current negative connotation and the negative press around it.
Here is my recommendation:
Price Harmonization: Has a nice positive ring (harmony) to it and is cryptic enough that it conveys nothing about the true intention of the marketer. Harmony does not have to mean homogeneity, it just has to mean “compatible, consistence, coincide in their characteristics”. You can look at it as making price compatible with customer willingness to pay.
Finally, a marketer practicing price harmonization appear to be doing something nobler than one practicing price discrimination.
Do you practice Price Harmonization?
Other similar pricing terms: Price Realization.