Despite its controversial title, price discrimination does not necessarily imply that some of the stakeholders are going to be treated poorly, whereas the needs of others will be prioritized. In some instances, price discrimination can help adders to a complex concern, as the case under analysis indicates. By introducing price discrimination into the company’s framework, one will be able to boost its sales and attract new and larger customers.
The assumption that the use of price discrimination will allow both smaller and larger customers to remain satisfied might seem to be counterintuitive. However, the adoption of price discrimination., namely, the strategy implying setting lower prices per unit for larger customers makes sense, given the difference in the number of purchased goods. Namely, it will be reasonable to set the threshold at which products purchased in bulk will cost a smaller amount of money and offer higher prices for customers buying a smaller number of products (Paczkowski, 2018). Thus, smaller customers will be eager to purchase products for their premium price, whereas larger organizations will be grateful for lower prices.
The pricing strategy under analysis falls under the category of second-degree price discrimination as the differentiation between customers buying larger quantities of the product and those buying it in lower numbers. The plan will increase revenue since it will target specific groups of customers instead of individual buyers, which will introduce homogeneity into the framework. Customers buying small amounts of products will be satisfied with the price-quality ratio, whereas buyers opting for larger product quantities will benefit due to the presence of the fixed price and, therefore, the opportunity to purchase more products while paying less. Furthermore, the specified practice will be completely legal since it represents a natural response to the market dynamics (Paczkowski, 2018). The use of price discrimination as the baseline pricing strategy will help the organization meet the needs of its key stakeholders and attract new customers.
Reflecting on the issue under analysis, the author of the post refers to the strategy selected by the company as the two-part tariff system. While the two-part tariff approach to pricing could be viewed as a form of second-degree discrimination, it does not necessarily accompany it. Specifically, the threshold price as the lump sum fee is not mentioned in the case directly but, instead, implied, whereas the author of the post names it specifically as the company’s strategy. Therefore, the response represents an incisive analysis of the situation and a proper understanding of pricing issues in the global market.
Reference
Paczkowski, W. R. (2018). Pricing analytics: Models and advanced quantitative techniques for product pricing. Routledge.