Differential Pricing Example – DVDs

Popular movies are released on digital media in a bewildering number of versions and formats in a great example of differential pricing.

 

Differential pricing involves selling the same, or at least very similar, product to different people at different prices depending on how they value it. Hopefully even the buyer that places a relatively low value on the product will find a price low enough that it appeals to them (while remaining profitable for the seller) while the customer with a higher valuation will be able to spend more (on a sale that is even more profitable to the seller).

It's hard to imagine a better example of this than the displays of new movie releases at an electronics store. Take a look at the contents of these two displays, for the same movie in the same store, on the same day...

example-of-product_differentiation-and-differential-pricing-2
example-of-product_differentiation-and-differential-pricing-1

To a very large extent all these different versions are the same in that they are all versions of the same movie, but they are being offered in a multitude of versions at five different prices. Most notably the most expensive version costs almost twice as much as the least expensive version.

The parent who just wants a copy for the car to keep the kids entertained on a long ride only has to spend $17.99. The people who value it more might be interested in the Blu-Ray version, or one of the packages with the souvenir dog tags. And somebody who is real into the movie (or buying it as a gift for someone that is) might spring for the most expensive version that includes Blu-Ray 3D, Blu-Ray, DVD and Digital Copies.

The seller is using price and packaging to ensure effective product differentiation. It's not enough for them to release and offer the different versions, they must be sure to distinguish the differences enough that they are perceived by the customer.

This is a beautiful example of differential pricing. The seller has realized that customers will pay between $17.99 and $34.99 for this movie. If they priced it in the middle, around $25.99 they would miss out on selling anything to those who valued it for less. At the same time they would be substantially undercharging the people that would happily pay almost ten dollars more.

Instead they use differential pricing and product differentiation to effectively stream the buyers of this movie into five groups and charge accordingly.

Sponsored by FloristWare – Software For Florists

Beyond Cost Plus is sponsored by FloristWare – powerful, affordable and easy-to-use software for florists that saves time and money while increasing sales.

FloristWare – flower shop software/POS system.

Related Material

Anchor Pricing In The Extreme

A $55,000 pair of headphones illustrate anchor pricing in the extreme, making even $2,500 headphones feel like a relative bargain.

Diminishing Marginal Utility, Anchor Pricing & Attraction Tickets

The historic ships in Baltimore, open to tourists, recognize that they offer diminishing marginal utility and price accordingly.

Other Benefits Of (And Approaches To) A Loss Leader Strategy

There is an additional pricing benefit to a loss leader strategy when it comes to implying value, and it can be flipped around to suggest quality.

Anchor Pricing and Event Registration Fees

A high anchor price (the standard registration fee) establishes the value of an event and makes the discounted early registration price almost irresistible.

Advanced Pricing Strategies From Hollywood

The pricing strategies used by Hollywood often show as much imagination and creativity as the movies themselves, and other vendors can learn from them.

Presenting The Same Offer Different Ways

Ordering printing online shows how simply changing the way an offer is presented can have a powerful effect on the way it is perceived.

Decoy Prices & Price Anchoring

New content added this week covers decoy pricing and price anchoring. Both concepts are defined in the pricing glossary with additional examples in the case studies section.

Raising Prices to Enhance Credibility and Increase Sales

Lower prices don't always mean more sales. Raising prices can be even more effective - adding prestige to your brand and anchor prices to your strategy.

Competing To Be The Most Expensive

What would worry you more – a competitor that charged less or a competitor that charged a lot more?

Anchoring On Price Tags

The price tags on sale items often use anchoring very effectively by including the higher regular price alongside the discounted sale price.

Anchor Pricing

Anchor pricing takes advantage of the human tendency to rely too heavily on the first piece of information received and make later judgements in relation to it.