Segmentation Is a Critical Part of Channel Management | Strategic Pricing Solutions

The challenge that Under Armour is facing is the exact reason most luxury brands limit their channels to high-end stores where shoppers are not price-sensitive.  If the luxury brands want to target more price-sensitive customers, they develop new products or brands that do not have the same cachet or premium pricing.  By doing so, they protect the reputation and pricing of existing products.

Although I am discussing a retail environment, the same problem exists in B2B.  Some customers are more price-sensitive than others, and are not willing to pay high prices.  If there is complete price transparency (customers can see what other customers are paying), it is very difficult to sell the same product at different prices to different customers.  So, to reach more customers without damaging their existing pricing, B2B sellers offer alternative products with a de-scoped feature set, or a lower level of service for which a lower price is available.  There is no magic bullet.

When I discuss these things with clients and others, I often hear the airline example where the person in the seat next to you paid a lower price.  That is true, but not if they bought their ticket at the same time with the same restrictions.  The ticket prices vary according to the inventory available, how long in advance the purchase is made, how quickly the return is scheduled, whether the fare is refundable, etc.  In other words, there are different value components for the different prices.

In the case of Under Armour, perhaps Kohl’s will limit their discounts of UA products.  Or perhaps the Dick’s customers will not want to go to Kohl’s to get the lower price.  It is also possible that the average discount on UA products will increase, but will be more than offset by increased volume.  My bet is UA will have difficulty controlling the discounting and their profit margins will come down.  And in the long-term their premium pricing will suffer.  Either way, it will be a good experiment to watch and educate ourselves.

Read complete article here:

Segmentation Is a Critical Part of Channel Management.