Question

D What is the purpose of charging different groups of customers different prices? Supplement the three broad examples in the Last Word with two additional examples of your own. Hint: Think of price discounts based on group characteristics or time of purchase.

Answer 1

The purpose of charging different prices for different groups of customers is to ensure that the company selling the goods or services is able to take advantage of the differences in characteristics that each group of customers have. Each group of customers has their own unique traits, needs and requirements and hence the value for a product or a service differs from one group to another. It is here that companies can try and optimize their profits by charging different prices for different groups of customers.

Two additional examples of my own are:

(i): Block pricing – This is often used by electric power companies and in this method different price per unit is charged based on different quantities of consumption.

(ii): Estimating customers’ reservation prices – In this example service providers like doctors, lawyers etc. charge people belonging to low income class lower fees and people belonging to high income class higher fees.