Value Based Pricing: Difference between revisions

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==How it works - a worked example==

A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the ~~service will increase~~ the price offered to those customers (e.g. from $4 to $6 per month), ~~without changing~~ the price ~~offered~~ to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.

A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the company then increases the price offered to those specific customers (e.g. from $4 to $6 per month), while continuing to offer the lower price to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.

==Why it is a problem==

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 ==How it works - a worked example==
-A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the service will increase the price offered to those customers (e.g. from $4 to $6 per month), without changing the price offered to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.
+A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the company then increases the price offered to those specific customers (e.g. from $4 to $6 per month), while continuing to offer the lower price to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.
 ==Why it is a problem==