A recent article in the New York Times got me thinking about how to stay on the right side of the law, while still extracting the most from pricing.
The article talks about the biggest no-no of pricing: colluding with competitors. NEVER do this. Never let your employees do this. You will get caught and the penalties are severe. This can get difficult to control with a sales force that negotiates price. But what about price discrimination? Is that legal?
Price discrimination…or value pricing?
According to Wikipedia, “Price discrimination is the practice of setting a different price for the same product in different segments to the market.” From the same article, value pricing is “Pricing a product based on the value the product has for the customer”. So what’s the difference between these two? Not much! Value pricing is a (sensible) subset of price discrimination. Of course the “D” word gets lots of attention and hints at the need to be careful.
So can I (value) price discriminate?
The rules vary by country, but broadly speaking, price discrimination is fine so long as there are objective criteria behind the differences. Pricing the same product differently into different industries, geographies, sizes of customers (with varying costs to supply) or user segments is fine. Pricing differently when the price is negotiated is also generally fine (see below). Figuring out the value a customer (or customer segment) receives from your products and services and doing this consistently is one of the keys to a high-performing pricing process.
Read complete article here: