1.
Image credit: vasta

2.
ONE PRICE
Price
Q-ty
P
Q
Dead value
Dead value
Captured value
Captured value (or revenue) = PxQ

3.
3 PRICE LEVELS
Captured value (or revenue) = Ps*Qs + Pp*Qp+Pb*Qb
Dead value reduced ~twice!
Price
Q-ty
Ps
Qs
Dead value
Dead value
Captured value
Pp
Pb
Dead value
Dead value
Captured value
Captured value
Qp Qb

4.
WHEN YOU CAN DO IT
There are 2 conditions that must be met to practice price discrimination:
• There are at least 2 distinct segments of customers
• It is impossible (or at least very hardly possible) to do arbitrage
CONTROVERSY
As a rule customers don’t like it.
What can be done:
• Frame it as a discount rather than price increase
• Don’t show lower price to higher paid customers if it is possible

5.
HOW IT CAN BE DONE
• Classical price discrimination (the same product priced differently)
• Student, senior, army force, health card prices
• Geographical
• Gender based
• Tourist prices
• Bulk discounts
• 2 part tariffs
• Coupons
• Versioning

6.
VERSIONING
Image credit: Gwoodhouse

7.
VERSIONING (CONTINUED)
Issues to consider: how many versions?
• Versioning cost (approach to development)
• Creation
• Support and operation
• Cost to make customer decision process more complex
• Increased sales/marketing cost

8.
BUNDLING
Image credit: snazzyguy

9.
BUNDLING
WTP, Joe WTP, Sue
Videoshop $50 $100
Photoprime $100 $50
Price set Joe pays Sue pays Total value
Videoshop= $100
Photoprime=$100
$100 (VS only) $100 (PP only) $200
Videoshop= $50
Photoprime=$50
$50+$50=$100 $50+$50=$100 $200
Bundle- Videoshop
+Photoprime = $150
$150 $150 $300

10.
HOW IT WORKS. REAL LIFE EXAMPLE
My side project Altima Lookbook: an extension for Magento e-commerce
More info: http://shop.altima.net.au/altima-lookbook-professional.html

11.
HOW IT WORKS. REAL LIFE EXAMPLE
We have 3 price levels:
• Altima Lookbook Free ($0)
• Altima Lookbook Professional
• Community edition $85
• Enterprise edition $210
More info: http://shop.altima.net.au/altima-lookbook-professional.html

12.
HOW IT WORKS. REAL LIFE EXAMPLE
Key numbers after 5 months of enterprise licence introduction
More info: http://shop.altima.net.au/altima-lookbook-professional.html
Number of Enterprise licences purchased, % of total paid orders 18%
Number of Enterprise licences purchased, % of total revenue 34%
Extra value captured (% of total revenue) 20%

13.
QUESTIONS?
?

14.
THAT’S IT
Thanks for your attention
Alex Levashov
alex@levashov.biz
LinkedIn: http://au.linkedin.com/in/alevashov/