Marketing Aptitude: Price Discrimination

Price discrimination is a microeconomic pricing strategy of charging different prices to consumers for the same good or service. Firms can earn higher products by charging different prices for the same product or service. The term ‘Price Discrimination’ has been defined as under:

• John Robinson: “The act of selling the same article produced under a single control at different prices to different buyers is known as Price Discrimination”.
• J. ‘ S. Basin: “Price Discrimination refers strictly to the practice by a seller of simultaneously charging different prices to different buyers for the same goods”.
• Spencer and Siegleman: “Differential pricing may be defined as the practice by a seller for charging different prices to the same or to different buyers for the same goods without corresponding difference in cost”.
• Cundiff and Still: “Most marketers vary their prices under certain conditions, even though they generally adhere to a one-price policy. Such price differentials may be based on size of purchase, type of customers or buyers’ geographical locations”.

The definition of ‘Price discrimination’ can be easily depicted by the given figure:

Types of Price Discrimination

Some of the important types of Price Discrimination are as follows:

• Personal Price Discrimination:When retailers charge lower price on the basis of personal relations with some customers, then it is called personal price discrimination. For example, shopkeepers related to sweets, cloth, grocery, etc. may charge lower price from their employees, friends, relatives, etc.
• Geographical Price Discrimination: When different prices are charged from the consumers of different places, it is called geographical price discrimination. For example, the price of a product may be different for eastern states, western states and southern states. The prices for delivering a product at different places of a state may also be different.
• Price Discrimination: When different prices are determined for a single product on the basis of use of the product by consumers it is called price discrimination according to use. For example, the rates of electricity for domestic and commercial use are different.
• Class Price Discrimination: When a product is used by different classes of consumers, different rates may be determined for the product for these classes. For this, the product may be packed in different packing with different labels.
• Time Price Discrimination: When the rates of a product are different for different times, it is called time price discrimination. For example, the rates of Internet service packages may vary in night hours and day hours.
• Price Discriminationaccording to facilities: When different prices are charged from different consumers on the basis of facilities provided to the consumers, it is called price discrimination according to facilities. For example, Indian Railways charges different fares for the same journey to the customers for General, Sleeper and Air conditioned coaches.
• Price Discrimination by Offering Discounts: When the price is discriminated on the basis of discount, it is called price discrimination by offering discounts. For example, cash discount may be given to those consumers who purchase the product on cash payment, specified discount may be offered to the consumers who purchase the product in a certain quantity and different prices may be determined for dealers.