Price Segmentation Example – Good or Bad?

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Heartwood and Oak sent a friend of mine two separate emails with the same offering at two different prices.  To be fair, they thought she was two different people. She had purchased from them in the past using two different email addresses and two different shipping addresses.

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What a great opportunity to analyze a price segmentation example.  First, let’s try to figure out why they thought these two customers had two different willingnesses to pay.  Here are the differences between the two “people”.

$84 Ad: email address was google.com; purchase history was a single case; shipping address was Mountain View, CA.

$90 Ad: email address was gmail.com; purchase history was several cases; shipping address was Los Altos Hills, CA.

Can we make sense of this?  First, the discount was to a Google employee (google.com email address). Google employees are probably better off than the average person, so that doesn’t make sense as the justification for a discount.  That may be different if Google was providing the opportunity to market to all of their employees, which was not the case here.

The discount went to the lower historical purchase volume.  I sincerely hope this isn’t what drove their pricing.  Although it is true that loyal customers would pay more, upsetting a loyal customer by charging a higher price (if they find out) costs the company the lifetime value of that customer.  Think of all the future purchases that customer may not make if he or she learned they were charged a higher price.

The discount went to the Mountain View address.  Although Mountain View is a very nice area in California, it is not nearly as nice as Los Altos Hills.  The median house price in Mountain View is $1.4 million while in Los Altos Hills it is over $4 million.  Location is likely the trigger they used in determining who received the lower price.

Next, will customers get upset?  My guess is that very few people will ever find out so they will be able to get away with it.  Not enough people read this blog to have a big impact on this one company.  However, 10 years ago Amazon did the exact same thing and got a black eye because the press thought it was a big story and many people found out.  Amazon stopped that practice (supposedly).

What lessons can you learn here?  One thing is you should do your absolute best to not send out two different emails to the same person.  This requires an excellent customer master.  Put yourself in the shoes of the vendor.  My friend used the same name on both past purchases but used two different shipping addresses (one corporate and one residential).  Now the company has to decide are these the same person or not?  Not easy.  Maybe they could have compared credit card information used in both purchases.  Maybe there was a billing address that was the same.

It is so easy to simply add people to the database and then advertise to them later.  However, if we don’t make a conscientious effort to keep a clean customer master we will run into situations like this.  I often receive the same advertisement to two different email addresses, but not with different prices for the same thing.  If you’re going to use this data for direct marketing price segmentation then you must keep your data as clean as possible.

As you know, price segmentation is a great way to capture more of what your buyers are willing to pay, but you do need to be smart about it.

And to be fair to Heartwood and Oak, my friend said she really likes their wine and would have been a good deal even at the higher price.  Of course she’s going to order at the lower price though.