Price discrimination (price discrimination)
Generally speaking, price discrimination means that a manufacturer puts forward two or more price requirements for the same product or service at the same time. It may also mean that the difference between the prices of various products or services of manufacturers is greater than the difference between their production costs.
In a perfectly competitive market, all buyers pay the same price for homogeneous products. If all consumers have enough knowledge, then the price difference between products of each fixed quality unit does not exist. Because any seller who tries to charge more than the current market price will find that no one will buy the product from them. However, price discrimination is very common in the market where the seller is a monopolist or oligarch.
[Edit this paragraph] The existence of price discrimination requires some conditions
1. Manufacturers must face a downward sloping demand curve, that is, the demand for products is inversely proportional to their prices.
2. Two or more purchasing groups must be able to distinguish a certain cost, which does not exceed the income that can be brought by distinguishing them. In other words, manufacturers can segment the market at a reasonable cost.
3. To prevent reselling between different buying groups.
4. The demand price elasticity of different buyers for products must be different, and manufacturers know it. That is, manufacturers understand the different demand levels of purchasing groups for products.
[Edit this paragraph] Price discrimination usually takes the following forms.
I. Direct differential pricing
Direct differential pricing means that manufacturers can determine consumers' different consumption preferences and thus determine prices. Suppose that the consumer market consists of four sub-markets A, B, C and D with the same scale. The consumers' willing prices in each sub-market are 40, 30, 20 and 10 respectively, and the unit production cost is 5, assuming that each consumer buys at most one unit product. If a single price is adopted, the optimal price must be one of 4O, 3O, 20, 10. When the price is 40, the sales volume is L and the profit is equal to 35 (40-5); When the price is 3O, the sales volume is 2 and the profit is equal to 50 (30× 2-5× 2); When the price is 2O, the sales volume is 3 and the profit is 45 (20× 3-5× 3). When the price is 10, the sales volume is 4 and the profit is equal to 20 (10× 4-5× 4); So the optimal price is 30 and the maximum profit is 50. If differential pricing is adopted to make the price of each sub-market equal to the price that consumers are willing to make, the profit will be obviously improved, and the profit will be equal to 80 (40-50, 30-5f20-50, 10-5).
Although direct differential pricing is the simplest method, there are often some problems in practice:
(l) It is difficult to determine the price of consumers' wishes;
(2) The market is difficult to subdivide;
(3) It is difficult to determine the price of a specific sub-market;
(4) There is no guarantee of resale between consumers;
(5) Consumers may think that differential pricing is unfair;
(6) Market segmentation and pricing costs may be too high.
Therefore, in practice, the indirect differential pricing introduced below is more common.
Second, two-part pricing.
That is, the price consists of two parts, one is fixed price and the other is unit product price. This method can be regarded as a quantity discount because the average price of a unit product tends to decline with the increase of sales volume. Compared with single price, the existence of fixed price can make manufacturers get more consumer surplus, thus improving profits.
Figure L Suppose that Figure L represents a homogeneous market and consumers have the same demand curve. When a single price is adopted, according to the principle of profit maximization, the profit is the largest when the marginal profit equals the marginal cost. At this time, the price is P*, and the consumer surplus is F *；; When adopting two-part pricing, the fixed price can be set as Fc, and the unit price can be set as marginal cost C, so that the fixed price becomes the only profit source and the manufacturer gets all the consumer surplus.
Figure 2 So how do manufacturers use two-part pricing to realize the price difference? First of all, manufacturers can set the fixed price on the high side to exclude some consumers, because if these consumers buy, the fixed price will exceed their consumer surplus. Secondly, manufacturers can set different average prices for different consumers. As shown in Figure 2, if there are a large number of Class A consumers, then the optimal pricing strategy is that the fixed price is the surplus of Class A consumers, and the unit price is higher than the marginal cost, so that both types of consumers will not be excluded, and the almost average price paid by Class B consumers is lower than that paid by Class A consumers.
Third, regional pricing.
Regional pricing is the most common pricing strategy for quantity discount. There are at least two marginal prices, and the fixed price is dispensable. Figure 3 shows a three-region pricing strategy with no fixed price.
Fig. 3 When the purchase amount is less than or equal to Ql, the unit price is p1; When the purchase quantity is between Ql and Q2, the unit price of the part exceeding Ql is P2; When the purchase amount is greater than Q2, the unit price beyond Q2 is P3.
To illustrate the superiority of regional pricing, we can compare it with two-part pricing. Suppose (F 1, Pl) is the optimal two-part pricing shown in Figure 2. Now consider: the fixed price is still Fl, and when the purchase quantity is less than or equal to Qb, the unit price is Pl, and the unit price above Qb is P2. In this way, the purchase amount of Class A consumers is still Qa, but the purchase amount of Class B consumers will increase from Qb to Qb', and the profit will also increase because P2 is greater than the cost C.
Fourth, product line pricing.
Nowadays, manufacturers often introduce a variety of product lines and products to the market. Because the market competition is very fierce now, it is very important for manufacturers to occupy the shelves. Many products allow manufacturers to occupy more shelf space, so the management and pricing of product lines are very important to manufacturers. The product line consists of a variety of products. The difference between these products lies in the different attribute configurations, but the basic functions are the same. For example, P&G has seven products in the light washing powder series, so a potential difficulty in product line pricing is the substitution between different products.
Fig. 4 in fig. 4(a), the willing price curves of two consumers intersect, so manufacturers can sell Y product to A with RyA and X product to B with Blg, and there will be no substitution phenomenon, because the price of X product is higher than A's willing price, and the price of Y product is higher than B's willing price.
In Figure 4(h), the two consumer willingness price curves do not intersect. If the price in (a) is still adopted, A will turn to X product, that is, X will replace Y, because when buying X product, A can get the consumer surplus of (Rxa— Rxb). The way to avoid this situation is to reduce the price of Y from Rya to below Rya-(RXA-RXB), so that A will get more consumer surplus when buying Y than X.
If the substitution problem is serious, that is, the price of Y needs to drop a lot, then we can consider deleting the substitution product, that is, reducing the length of the product line. For example, if the number of consumers A and B are Na and Nb respectively, and if Nb * RXB+Na (Rya-RXA+RXB) < Na DR Byn, it will be more advantageous for the manufacturer to delete product X and sell product Y to A only at the price of Rya.
Five, product set pricing
Manufacturers sometimes sell two or more products as a product set, which generally includes two situations: one is that the product set consists of different products, and the other is that the product set consists of the same products.
In the first case, the reason why manufacturers sell product collections is that if consumers' preferences for different products in product collections are negatively correlated, then selling products alone will either make the product pricing too low or exclude some consumers. The adoption of product set sales will neither reduce profits nor exclude consumers. Through product mix, manufacturers assimilate heterogeneous markets into homogeneous markets.
For example, if the manufacturer sells two products A and B, the consumer market consists of two sub-markets X and Y with the same size. Assuming that the unit cost of each product is less than 4, their willing prices are (12,4) and (4 12) respectively. If a single product is sold, the price of A is 12, the price of B is 4, X won't buy B, and Y won't buy A. However, if A and B are sold as a product set, the willing prices of X and Y for the product set are 16, so the sales will increase from 24 to 32, and no consumers will be excluded. However, this product set strategy also has a disadvantage, that is, the consumer's willing price may be lower than the marginal cost of the product. For example, suppose the unit cost of the product in the above example is 6. If the product is sold separately, the profit is 12. When the product set is adopted, if the willing price of X to B and Y to A is less than the marginal cost, the profit will be reduced to 8. At this time, it is more favorable for manufacturers to sell separately.
In the second case, the manufacturer adopts product sets to increase sales. The most common examples are sports packages and concert packages. Take the annual sports package as an example, assuming that the number of annual competitions is n, the total cost is e, and the predetermined price is p, the manufacturer can know the number of consumers who are willing to buy the package at the price of p through sampling survey, and the number of attendees is (1.2.3 … n- 1.n), so as to get the total income, and then determine it according to the principle of profit maximization.
The above discussion is pure product set sales, but in fact, more mixed sales are adopted, that is, single product sales and product set sales are adopted at the same time.
In the marketing mix (product, price, location and promotion), promotion is the most commonly used and flexible. As a part of promotion, price promotion belongs to any form of price discrimination. Take commodity vouchers as an example. In 1980s, Schuster Department Store in Milwaukee, Wisconsin, USA began to issue coupons to customers. Today, there are about 250 commodity coupon companies in the United States. Sperry and Hutchinson Green Commodity Vouchers control 40% of the market. Only about 5% of the coupons of these companies have not been recovered. So, why do department stores issue coupons?
As we all know, the total price of a product should include not only the monetary price, but also the implied time opportunity cost. Here, time includes the time to find a product and buy it (and the time to consume it). We can assume that the more people pay attention to the time spent on free purchases, the less people are committed to finding low-cost purchase arrangements. In other words, a person whose estimated time is relatively higher than the monetary income will spend more money than the time spent in order to save the purchase time, and he will spend less time looking for a lower price. Therefore, in any given store, people with higher time estimates show more inflexible demand curves than those with lower time estimates. We assume that the time value has a strong correlation with a person's relative wealth, and the time value of richer people is higher than that of poorer people. Then, in a given store, a richer person's demand price elasticity will be lower than that of a poorer person. At present, retailers are faced with two types of consumers, one is relatively small demand elasticity, and the other is relatively large demand elasticity. The problem for retailers is to distinguish between two types of consumers and charge higher prices to richer consumers. One way is to offer kickbacks to customers who are willing to spend time and cost. The rebate is in the form of commodity coupons. Therefore, people who want kickbacks must collect and keep commodity coupons, and then exchange them at designated places. All these activities need time, so that poorer people with greater demand elasticity will pay lower prices for the goods they buy, because they can get the goods when they redeem coupons. However, wealthy consumers with less elasticity of demand will reject these coupons because of the time cost. They don't enjoy any kickbacks when shopping.
Price discrimination can be divided into first-class price discrimination, second degree price discrimination and third-class price discrimination.
(1) If the manufacturer sells each unit of product at the highest price that consumers are willing to pay, this is first-class price discrimination; First-class price discrimination is also called complete price discrimination.
(2) Asking different prices only for different consumption quantity segments is called second-degree price discrimination; There is no serious price discrimination in second degree price discrimination.
(3) Monopoly manufacturers charge different prices for the same product in different markets (or for different consumer groups), which is called three-level price discrimination.