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The "Start-Up Discount": Acceptable Price Segmentation

Posted by PriceBeam on May 8, 2017

As described in a recent blog post, price segmentation can be very dangerous. In some cases it is illegal, and in other cases your customers will punish you if it cannot be justified. Consumers hate being treated unfairly, and this should be avoided at all costs.

However, there are exceptions; situations where consumers understand that you may charge a different price to some than others. For instance, student discounts and pensioner discounts are widely accepted: people understand that these groups have tight budgets, and don't mind that students and pensioners get 50% off the bill. 

There are few segments that can gather "sympathy" like students and pensioners when it comes to price segmentation. There are hardcore facts suggesting great differences in purchase power between different ethnic groups, but of course, no company would charge different prices based on race (that would be illegal too).

One segment that is starting to gather a similar level of "sympathy", however, is the start-up segment. They are the students of the B2B environment in the sense that they do not yet have the purchasing power of a big corporation, but have the potential to gain similar purchase power in the future. Therefore, the "startup discount" is a great way for many businesses to reach a segment with low willingness to pay, and at the same time create loyalty at an early stage, so they can reap the rewards once these startups grow big. And it is being increasingly used. Some negotiate substantial discounts with startup customers, but do not include it in their list prices. Other companies state prices specifically for startups, such as the research company Skift who includes a 75% discount for startups in their conference pricing.

Price segmentation is one of the most important pricing tools, but should be applied with great caution. And now it seems that the startup-discount is a widely accepted form of price segmentation, which many companies can benefit from without other customers viewing it as unfair. This is a great opportunity for many companies that sell products or services to both startups and larger companies, and should definitely be seized, if possible.

Written by PriceBeam

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