The paper "Price Customization, Multi-Dimensional Pricing " is a perfect example of marketing coursework. The fact that consumers have different perceptions of value and utility on different products and services on offer implies that the amount they are willing to pay for the same product or service varies. Marketers are faced with the challenge of identifying the value perception held by different consumers in order to ensure that they pay for a price that is individually fair to each and everyone. While this has proved to be difficult, marketers have developed techniques that bring them closer to realising a situation whereby each customer pays what he feels is worth that product.
Simon et al (2001) list these techniques as: multi-dimensional pricing, multi-person pricing, price bundling, multi-product strategies and normal or Dutch auctions. The choice of technique to be used depends on the nature of the consumers, consumer information availability and the products/service being marketed. The two main ideas behind individualised pricing strive to ensure higher profits and higher customer satisfaction on the pricing front. They note that the use of unitary pricing which groups all consumers in one large segment results in lost profits as some consumers may be willing to pay higher than the set price.
They indicate that the regular optimal pricing strategy where consumers are placed in one segment leaves out untapped profits. Individualised pricing comes in to play to reach out to consumers left out by the optimal pricing strategy. Essentially, it targets consumers who might be willing to pay more above the optimal price for a product/service according to the value perception and also those who might be willing to pay above the breakeven price for the firm but below the optimal price. However, to achieve effective individualized pricing, the marketer must gather necessary information about the market such as consumer preferences, consumption trends, income, competition etc.
The nature of the industry also plays a fundamental role in determining which technique to be applied. Gans and King (2004) identify that despite there being other determinants in customer satisfaction, price plays the highest role. They write that “ perceived price fairness might be the dominant determinant of satisfaction” (p.
49). On the other hand, the principle of dual entitlement states that the marketer cannot sacrifice profits for a fair price for the customer and hence a fair price should also optimize the benefits (profits) for the marketer (Herrmann et al 2007). Simon et al (2001) discuss the various techniques individually and give examples. This paper summarises the discussion of these techniques by Simon et al in the paper “ Individualised pricing: Boosting profitability with the higher art of power pricing” and supports them further with relevant literature and gives out other examples. Multidimensional pricing This is one of the favoured methods of individualised pricing where the marketer uses more than one price parameter to set the price.
During the recent global economic recession, some economists did suggest that air travel companies would be well suited to introduce charges based on the weight of the passengers besides the regular travel charges based on distance and class (Elliot 2010). Although this has not been adopted, it would make economic sense to charge extra fees to heavier passengers as it basically implies higher energy costs for the flight company.
Although this would earn the airlines higher profits, it would hurt their public image and sales on social and ethical grounds. This concept seems to have been borrowed from freight and delivery companies where charges are based on weight, volume and distance.
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Elliott, C. (2010). What's next for airlines, paying by the pound? Retrieved online on 10/08/2010
Gans, J. and King, S. (2004). The Australian national university working papers in regulatory
economics paying for loyalty: product bundling in oligopoly. University of Melbourne working paper no. 2. 30 march 2004. Retrieved online on 10/08/2010 from
Herrmann, A. et al (2007). “The influence of price fairness on customer satisfaction: an empirical
test in the context of automobile purchases” Journal of Product & Brand Management. 16(1) 49–58
HP and Windows 7 Professional. Retrieved online on 10/08/2010 from
Luxury Link (2010). About us. Retrieved online on 10/08/2010 from http://www.luxurylink.com/.
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Rao, V. (2009). Handbook of pricing research in marketing. Melbourne: Edward Elgar
Sabri, E. & Shaikh, S. (2010). Lean and Agile Value Chain Management: A Guide to the Next
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Price Bundling: needs to better explain the example.
The Multi product strategies section: needs proper refrencing ( who is Joshua KING?).
For Normal or dutch auction: use luxurylink.com (