Variable pricing allows different rates to be extended to different customers for the same goods or services, and is used in cultures where weighting the price of products is considered the norm or in bidding situations. It differs from fixed pricing, which extends the same price to all purchases made during a specified time period. Variable pricing has benefits, but it also has the potential for disadvantages.
Variable pricing is a marketing approach that allows different rates to be extended to different customers for the same goods or services. The approach is generally employed in cultures where weighting the price of products is considered the norm, or potential buyers may participate in a bidding situation, such as an auction. Even in countries where fixed pricing is the standard, variable pricing can come into play when customers commit to purchasing large volumes of goods or services. In this case, the customer usually must meet specific criteria to obtain prices that vary from standard cost.
The variable pricing strategy is different from the fixed pricing policy that prevails in many situations. With fixed prices, the seller evaluates all relevant factors, determines whether a buyer should be charged a rate other than the standard price, and then extends that price to all purchases made during a specified time period. Typically, a contract is used to fix these discounted rates for a period of time agreed between the buyer and seller. Variable pricing, on the other hand, is normally extended all at once. If the customer wishes to place a second order at a later date, the circumstances will be reassessed and alternative prices will be issued if the seller believes this is warranted.
One of the classic examples of using variable prices has to do with street vendors selling various types of small goods. There is often a default price posted for each item on sale. If the supplier really wants to sell an item and determines that a potential buyer is unwilling to pay the posted price, they may engage the individual in a sales price negotiation. Sometimes called idiocy, the buyer and seller bid back and forth until they get a price they both believe is fair. During the process, the buyer tries to bring the price down as much as possible, while the seller tries to get the highest possible return on the sale.
The real estate market also works with the use of variable prices. Prospective landlords often submit bids for properties that are less than the asking prices, in the hope that landlords will accept a lower amount. This usually leads to a series of offers and tradeoffs that sometimes result in a sale. At other times, the two parties cannot reach an agreement and no sale takes place.
Variable pricing provides some benefits, but it also has the potential for disadvantages. On the one hand, sellers can use this pricing strategy to move goods or services that haven’t performed as expected, allowing them to earn a modest profit or at least recoup their investment in the products. A possible downside to variable pricing is that it can lead to the loss of other customers who paid full price for their purchases if they discover that a more recent customer managed to get a lower price.
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