Firms knowledge about its’ customers over the last years has skyrocketed. With the rise of the internet came revolutionary ways to differentiate customers. The use of different tracking mechanism allows for a company to track the customer. The combined information that is gathered can be converted into a customer profile. Nowadays it is essential for shops to determine groups within those profiles. Easy ones are age, gender and location, but as more data is analyzed more profiles can be distinguished. This blog post will focus on a few of these customer profiles that are a bit harder to determine than age or gender.
Strategic pricing is nothing new, segmentation between customers has been done for ages but it is time to bring it to the next level. Consumers are smarter than ever. Searching costs have dropped with increased ease of use of search engines. Reviews and technical information are for most product categories widely available, this relatively new development leads to improved product informedness; the consumer is better aware of what is in the market. Same goes for the price of products. Comparison sites make it much easier to quickly determine the average industry price, leading to a better price informedness; a customer that knows the value of the product. These factors together lead to a higher consumer informedness.
With all this information available to the consumer, it becomes more and more difficult to define the perfect pricing strategy for your products. Research at the Erasmus University Rotterdam in collaboration with the Singapore Management University suggest that there is no perfect pricing for a product group. First of all the research made a difference between two types consumers. A commodity Segment and a differentiated segment. The first consumer group has a strong preference for choosing the product that offer the best price. The second group is willing to pay more if that means that the product fits better to their needs.
The groups were analyzed using data that was collected through a series of stated choice experiments in two different contexts. Results were clear, one pricing strategy for a product just isn’t enough. A company needs to develop different pricing strategies depending on the kind of customer it is facing. The research found that different levels of informedness amplified different consumer segments. Consumers of the commodity segment, who highly valued price, where more influenced by a product offering high price informedness. Whereas the differentiated segments behavior was stronger amplified by an increase in product informedness. This means the firm needs to make sure the type of information available of the product matches with the type of customer that is interested in buying the product.
For the company this leads to a necessity to use advanced tracking tools to determine the kind of consumer it is facing, and adjusting not just the price, but all the information available about that product. This will have as a possible result that customers see a totally different price and description compared to their friend or family member, even though it is exactly the same product. And for you: As a consumer you will get product and price information that is ‘tailor made’ to fit to your preferences, which sounds nice but it could for example mean that you pay a much higher price because the company knows you are using an expensive laptop.
– Li, T., Kauffman, R.J., van Heck, E., Vervest, P., and Dellaert, B. (2014). Consumer Informedness and Firm Information Strategy. Information Systems Research 25(2) 345-363. http://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=3194&context=sis_researc
– Tsekouras, D. (2015). ‘Consumer Centric Digital Commerce session 4’. Business Information Mangement. RSM Erasmus University.