This Executive Memo is an outline for integration into online retail in the field of small and medium-sized businesses. More specifically, it is a brief scenario of the business approach using price discrimination, as well as its possible incomes that will be presented to the company’s President and later to the Regional VP of Finance. It includes strategic steps to use the three- and first-degree discriminations models, as well as Markup pricing, for launch, promotion, and expansion of sales of T-shirts with variable prints.
Price discrimination is an essential concept that is characteristic of many companies that aim to achieve significant profits. According to Twin, “rice discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to” (Twin, 2020, para. 1). Hence, it is vital to know how to apply it.
The product will be T-shirts with variable prints that customers will be able to choose. The benefit for clients is that they are free in their choice of style. The company has not offered such a product in the past; thus, there is a need to conduct an exhaustive market analysis before entering it. The primary competitors are PrintShop (“Custom clothing,” 2020), and Underground Printing (“Underground printing,” 2020).
Price Discrimination Proposals
- Implement third-degree price discrimination to sell products in a profitable way. It means charging “a different price to different consumer groups” (Twin, 2020, para. 13).
- For such a technique, Markup pricing is recommended as this approach is suitable for the retail that is characteristic of the described policy.
- The current price is dictated by the market – due to a strong rivalry – and it is $18, on average.
- The new price will be $15; this technique will generate more profits as the low price will lure many customers.
- The additional method will be first-degree price discrimination that “charges the maximum possible price for each unit consumed” (Twin, 2020, para. 11).
- Mark-up pricing is still rational as it will be retail selling. The new price will be 20$; it will allow gaining maximum income from each unit sold.
Impacts on Consumer Demand
- The focus on third-degree price discrimination is due to the position of a new entrant in the market.
- Conditional sales will be about 300 units per month before price discrimination.
- Then, big store chains will be lured by discounts and place substantial orders. It will increase sales to 500 units per month within the next three months.
- If the business remains stable, within eighteen months, there will be sales of about 1000 per month; further, price discrimination techniques will be combined.
The measures proposed in the outline were selected for several reasons, which will be described below. Third-degree price discrimination, which is based on targeting specific demographics (Horton, 2018), was chosen as one of the primary ones because it allows attracting consumer attention and profits, and contributes to economizing (Chulkov and Nizovtsev, 2016). The third-degree model creates a change in the quantity demanded, namely a positive shift in demand. The use of the Markup pricing strategy is because it is suitable for both traditional and overloading periods of hot selling (Zhang et al., 2016). First-degree price discrimination implies an understanding of what price the customers are ready to pay (Horton, 2018). The success of its application is because customers often quickly get used to such a pricing policy (Swart, 2019). First-degree model discrimination will provide rates of return and, therefore, a positive shift in supply. These financial methods are both universal and efficient for all retail and customer situations.
In conclusion, it seems reasonable to note that the appropriate price discrimination technique contributes to increased profits. The proposed plan allows you to increase sales and therefore profit twice in three months and in three times in a year and a half. The proposed market techniques are as safe as possible and do not incur significant financial costs. Price discrimination is a useful tool that may maintain any business. The example above shows how such an approach may be applied.
1rd price discrimination. Web.
3rd price discrimination. Web.
Chulkov, D., & Nizovtsev, D. (2016). Are you getting the best deal online? A case study in e-commerce price discrimination. In Allied Academies International Internet Conference (Vol. 18, No. 2) (pp. 113-117). NC, US: Jordan Whitney Enterprises, Inc.
Custom clothing: Personalized clothing for every occasion. (n.d.). PrintShop. Web.
Horton, M. (2018). Three Degrees of Price Discrimination. Investopedia. Web.
Swart, L. (2019). Perceived fairness towards airlines using online first-degree price discrimination as a pricing strategy. Web.
Twin, A. (2020). Price discrimination. Investopedia. Web.
Underground printing: Design custom T shorts & more. (n.d.). Underground Printing. Web.
Zhang, J., Gou, Q., Yang, F., & Liang, L. (2016). Online hot selling period and its impact on e-retailer’s pricing strategies. International Journal of Production Research, 54(7), 1899-1918.