Individualised pricing:: boosting profitability with the higher art of power pricing

While product and service customisation strategies are employed by a growing number of successful companies on and off the Internet, customised pricing may offer greater potential profit. The basic idea of price customisation is simple: Charge every customer the (individual) price he is willing to pay based on the (individual) value he places on the product. However, identifying that value for each individual customer is often an impossible task. Thus, you have to find a way to bundle customers into segments according to their value perception and then fence off these segments from one another. Managers must therefore first determine the different values customers place on their product and what that value is worth to each in monetary terms. Once this is done and customers are divided into segments, managers can choose among five innovative techniques to implement price customisation (multi-dimensional pricing, multi-person pricing, price bundling, multi-product strategies and normal or Dutch auctions). A possible profit gain of 10-40 per cent could make it well worth investigating this innovative approach to pricing.