A large provider of home improvement products sells flooring tiles to retail customers for $13.99 per box of 20 tiles. The provider offers contractors who sign up for the provider’s loyalty program the same box of tiles for $10.99 when they purchase more than 10 boxes of the tiles. This would be an example of ______?

Question

BlackTom AI · Accepted Answer

Begin by identifying what each option would imply in the context of pricing for home improvement tiles.
Option: Price format. This would refer to how a price is presented (e.g., $13.99 vs. $14.00) rather than differences in price based on customer type or purchase volume. The scenario does not revolve around the presentation format, but rather a price variation by customer segment, so this is not the best fit.
Option: Price segmentation. This captures the core idea: offering different prices to distinct groups of customers based on characteristics such as relationship (contractors vs. retail customers) or buying behavior (more than 10 boxes). The loyalty program for contractors yields a lower price than what retail customers pay, which is a classic example of segment-based pricing to extract more value from different customer segments.
Option: Partitioned pricing. This involves charging separately for the product and the delivered services or add-ons, such as a base price plus separate fees for packaging, delivery, or features. In the given scenario, there isn’t a separate charge or partitioned components; there is simply a different unit price depending on the customer group and purchase quantity, so this does not describe partitioned pricing.
Option: Price negotiation. This would entail bargaining or haggling a price with customers. The case presents a predetermined tiered price rather than an ongoing negotiation process, so it doesn’t align with price negotiation.
Option: Just-below pricing. This refers to setting prices just under a round number (e.g., $13.99) to create a perception of a better deal. While the price per box for retail is $13.99, the key feature of the scenario is the distinction between contractor and retail pricing, not the psychological effect of the cent-ending price point. Therefore, this is not the primary mechanism at work here.
In summary, the hallmark of the described arrangement is charging different prices to different customer groups (contractors vs. retail customers) based on loyalty and purchase volume. This aligns with the concept of price segmentation, where firms segment markets and tailor prices to each segment’s willingness or ability to pay.

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