The other day I was talking with someone about price segmentation and he asked me about the Bausch & Lomb situation. I didn’t know anything about it, so I looked it up. Here is a detailed description.
From a pricing perspective, it was brilliant. B&L took the exact same contact lens, packaged it differently with three different brand names, and had different instructions for how often to replace them: daily, every couple weeks or extended. The wholesale prices were $5, $8, and $46 (for the exact same lens).
Why was this smart? They had a market for long life lenses and realized they could make more money by dramatically lowering the price and getting customers to buy more often. By creating a new version, they didn’t have to lower their prices on the existing business.
If you already know this story though, you know that B&L was sued for this in 1994 and eventually settled. They weren’t sued for breaking any pricing laws. Rather, they were sued for fraudulent marketing. They were misleading their customers into thinking the lenses were different, that they needed to throw away the disposables every day. (I used to wear disposables and was too cheap to throw them away daily so I’d usually keep them for several weeks. Now I know I could have kept them even longer.)
B&L had FDA approval every step of the way, but in the end misleading customers is what caught them. Here is what B&L could have done. They could have tested their long life lenses with an additional QA check and then guarantee a level of performance to those customers. This would have added very little additional cost, the products perform the same in the short term but only one is guaranteed for the long term.
What can you learn from this? Don’t use fraudulent marketing to support your price segmentation. Price segmentation is used all the time and is not the culprit here. Continue to pursue means to segment your customers based on Willingness To Pay. However, don’t intentionally mislead them.
Mark Stiving, Ph.D. – Pricing Expert, Speaker, Author
Photo by maikel_nai