1 What is price discrimination?

Price discrimination is the practice of charging different prices to different customers for the same or similar product or service, based on their willingness or ability to pay, their preferences, their location, or other factors. Price discrimination can take various forms, such as charging different prices for different units of the same product (e.g., bulk discounts), charging different prices for different versions or quality levels of the same product (e.g., premium or economy seats), or charging different prices for different times or occasions of purchase (e.g., peak or off-peak rates).

2 What is bundling?

Bundling is the practice of offering two or more products or services together as a package, often at a lower price than the sum of their individual prices. Bundling can be pure, where the products or services are only sold as a package and not separately, or mixed, where the products or services are also available individually but at a higher price. Bundling can help businesses increase their sales volume, reduce their inventory costs, and leverage their complementary or supplementary products or services.

3 Why use price discrimination and bundling?

Price discrimination and bundling can have numerous advantages for businesses, such as increasing revenue and profits by capturing more consumer surplus, segmenting the market to cater to different customer needs, preferences, and sensitivities, and attracting new customers or retaining existing ones by offering them more value or choice. Moreover, it can enhance customer loyalty by creating switching costs or lock-in effects and differentiate the product or service from competitors, creating a unique selling proposition or brand image.

4 How to balance customer satisfaction and loyalty with price discrimination and bundling?

Price discrimination and bundling can have some drawbacks or risks for businesses, such as reducing customer satisfaction and loyalty, inviting legal or regulatory challenges, and facing competitive responses. Therefore, businesses need to balance these trade-offs and consider factors like the elasticity of demand, the cost of differentiation or bundling, customer awareness or information, and customer loyalty or retention. Generally, price discrimination and bundling work better when demand is elastic, the cost is low, awareness is low, and loyalty is high.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?