Pricing for Different Sales Channels

If you are a fan of Bay Area farmers markets you likely would have tasted samples from an enthusiastic vendor selling Bolani.

If you ever went beyond tasting the free samples and bought a few, you would have paid $6.00 per unit.

If you walk into Bay Area Whole Foods you will find Bolani being sold for $6.80.

If you want to order online from their website it will cost you $6.99.

Can you think of possible explanations for selling the same product at different prices through different channels?

First we do not know whether or not $6 is the right price. Let us assume it is. You could argue that the vendor would have collected demand data over hundreds of weeks to set a price based on what customers value and willing to pay rather than based on what it costs them and tack on a markup. (Tall order?)

If we accept that then it is not hard to see that customers who buy through  different sales channels are different. Even if they are the same customers their purchase occasions and reasons they buy are different. Hence their willingness to pay for the same product at different sales channels are also different.

Pricing is not just tied to the product. It starts with customer segment, determined by their perceived value and varies even for the same customer based on the time, situation, and specific job they are trying to get done with the product. Understanding customer segment, job and purchase occasion helps you set the price to maximize profit without leaving money on the table and without remorse.

Foot note:

While this vendor has control over channels they control (their site at farmers market and their online channel) they have no control over pricing at Whole Foods. They have to settle for a wholesale price Whole Foods is willing to pay as long as the total profit from adding the sales channel is more than they would have had otherwise. (See a detailed discussion on math on adding a sales channel in my book.)