price differentiation (price discrimination)
Price differentiation, also known as price discrimination, refers to the sale of factually identical products to different market segments at different prices and thus serves the purpose of differentiated market cultivation.
The aim of price differentiation is the complete absorption of willingness to pay. In principle, four forms of price differentiation can be distinguished:
- Spatial price differentiation: Spatial price differentiation, also known as vertical price differentiation, involves products being offered at different prices in regionally distinct markets. An example is a petrol station that is unrivalled in its immediate surrounding and therefore sells fuel more expensively than a petrol station with a lot of competition. Another example are everyday products common in one region, which are sold as delicacies in other regions.
- Temporal price differentiation: With temporal price differentiation, also called horizontal price differentiation, products are offered at different prices depending on the temporary demand. Examples are sales, a happy hour or the price development of fuel at petrol stations.
- Personnel price differentiation: Personnel price differentiation is based on different buyer characteristics and resulting willingness to pay of individual target groups. Examples are school, student or family tariffs.
- Functional price differentiation: This form of price differentiation is based on the functional intended application. Examples of this are different tariffs for industrial and household usage or the different price for heating oil and diesel.