What is Price Targeting and How Does it Affect You?

What is Price Targeting and How Does it Affect You?

Have you been paying more than you could probably get away with? Do you know that not everyone pays the same price for the same service that you received? How can you find the best deal for what you buy?

Price targeting is a tool that sellers often use, but if you’re aware of how it works, you can often get a better deal. The first question people ask when hearing about it is usually, “what exactly is price targeting?”

What is price targeting?

Price targeting is a method to get consumers to pay as close to their maximum price, when they decide to buy, as possible. Retailers love this approach because they can sell the same (or a very similar) product or service at different price points to different customers, thereby increasing revenue and profits. In essence, they’re trying to capture the so-called consumer surplus.

Why do they do this? Buyers are generally looking for the lowest price, and most consumers aren’t willing to tell the stores the most they’re willing to pay for an item. They’re looking to get a deal from the retailer, but their definition of a “good deal” is often subjective.

Price targeting in our lives

Organizations that use this method effectively include universities, coffee shops, and airlines. What’s the difference in education between in-state students and out-of-state students? Nothing, they share the same teachers, labs, and resources. Yet out-of-state students can pay 3x the price for the same education.

If you’re a high school senior or parents of college bound kids, check your state’s schools to if there are any high quality options. You could save quite a bit of money without sacrificing a solid education.

When you’re grabbing some coffee at the coffee shop, ask yourself if there’s a big difference between menu items. My husband spends around $2 for his Venti brewed coffee compared to my tall frappuccino for about $3.50 before taxes. Being aware of small things that like can help you decide what you’re willing to pay for and what you can cut back on.

And the next time you’re on a flight, take a look around yourself and realize that just about everyone paid a different price to be on your flight. These price fluctuations, along with subtle pricing difference between similar flight schedules, are meant to maximize revenue.

Take advantage of price targeting

How can you arm yourself and get a great deal? The big key is information. When more information is readily available, you have the power to make some more financially advantageous decisions.

Find out what other consumers are paying. Admittedly, you’re not going to be able to find that for everything, but the web has made it possible for you to get a tremendous amount of information. If you check out discussion forums in areas that interest you, there are usually people who are willing to share details related to deals that they’ve snagged.

Depending on the item you’re looking at, eBay can also be a helpful resource, as you can see what buyers are paying for at the auctions.

If you’re traveling, Better Bidding is a great resource finding out about successful bids on Priceline or Hotwire. That information can make all the difference between getting a good deal and getting a great deal.

When trying to find the bottom of the market when bidding on Priceline, we start by going low (usually half the best advertised priced) and then slowly increase our bid until it’s accepted – note that you can only re-bid on the same deal once every 24 hours, so give yourself time.

You can also use this principle for insurance quotes for yourself and your family. Use online resources to see what the major companies are offering and research the details on the policies. You may find that you can cut your bill drastically with a little legwork from home.

For those hunting for an apartment, rentometer can let you know the average prices for apartments in your designated area. Since housing is usually a big chunk of expenses for most people, you can save some considerable money here.

Your thoughts on price targeting

When I first discovered it, I thought this was a fascinating topic, and I’m sure you guys have some great ideas on it. Since some people are willing to pay more than others for certain goods or services, businesses would be foolish not to try to sell at multiple price points.

At the same time, if you want to cut costs, you can use price targeting to your advantage to get goods and services for significantly less than others are paying.

How about you? Are you aware of the practice of price targeting? What are your favorite tricks for cutting through the confusion and getting a great deal?

7 Responses to “What is Price Targeting and How Does it Affect You?”

  1. Anonymous

    I find price targeting a fascinating subject as well.

    I do a lot of consulting work and when we sell services we do end up charging different people different amounts for similar projects, which I suppose is a form of price targeting.

    When selling large projects, there is always the negotiating dance and sometimes you have to cut your prices or restructure the deal in order to keep it alive. And sometimes smaller customers simply have smaller budgets and you have to live with what you can get.

  2. Anonymous

    Thanks for the real-life examples! It’s amazing how even if we have frugal intentions we can end up paying more than we could for products.

    Since writing the post, I’ve been trying to be diligent, but sometimes convenience wins out and I pay a pretty penny for it.

  3. Anonymous

    This is also very evident when buying items in bulk. One thing that amazed me was in stocking up on some Jack Daniels for our upcoming Thanksgiving and Christmas parties.

    A 750ml bottle is currently priced at $15.99 you can get 17 shots per bottle at a price of $0.94 cents each.

    A 1 Liter bottle is currently priced at $24.99 you can get 27 shots per bottle at a price of $0.92 cents each.

    A 1.75ml bottle is currently priced at $30.98 you can get 45 shots per bottle at a price of $0.68 cents each.

    While some people will look at see right away that the better deal is to buy the bigger bottle but what if you don’t need that much whiskey or don’t have $30 on you at the time of purchase?

    What’s amazing is that Jack Daniels sells over 8 million cases of 750ml bottles per year and only a fraction of that in the 1.75ml size. Does this make economical sense? Are people being targeted in a way which takes advantage of peoples inability to make decisions?

  4. Anonymous

    @Steve

    As someone who has worked closely with HR professionals in the past, the reason for discouraging salary comparison has more to do with not wanting to specifically discuss what a company is paying you for (longer hours from salaried workers, higher long-term potential, better quality of work in the same job, higher output, etc…) Especially for items that an employee often feels are subjective.

    The job you hold only partially determines your value to the company. Your daily performance, implementation of management objectives, attitude towards work, etc… all matter when determining what your value to the company is. If two people have the same job, but one produces 15% more output, they are 15% more valuable, and their pay probably reflects that in some way. Of course the one being paid less doesn’t always see it that way (often because they value their other contributions differently.) And that morale-killing discussion is often what they want to avoid having.

    A bad apple spoils the whole lot. A disgruntled employee can have the same effect.

  5. Anonymous

    Another way come companies price target is product placement. Where a product is placed in a store sometimes affects what price you’re willing to pay for it.

    End caps are a great example of this. An assistant store manager I knew at a major national chain said they used end-caps to temporarily get higher pricing (and in some cases volume) on various items. By placing it on an end-cap it avoided people going down the aisles and looking at substitutes that may have a lower price. Since you don’t know you are paying $0.50 more for an equivalant bag of tortilla chips, you’re still happy even though you paid a higher price for it.

  6. Anonymous

    One problem with price targeting/negotiable pricing is that it annoys people. For instance, airlines are almost universally disliked, in part because of their pricing practices. Car dealers are similarly viewed for the same reason.

    The flipside of price targeting, as this article states, is that some buyers can get a better deal because they are being subsidized (in a sense) by other buyers who are paying a higher price. Also, sellers who don’t target their prices usually seem to have slightly higher prices. (For instance, Saturn.)

    Job salaries (except for union jobs) are also “price targeted”. Employers discourage or explicitly forbid the sharing of salary information. That lets them pay some employees less than others for the same job.

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