Telecomm's pricing - price discrimination

Price discrimination is the strategy where you offer different customer the same product at a different price.

Where the product expires due to time e.g. sell by date on a plane ticket, there is a location factor e.g. London vs Bristol, or bulk quantities are involved the practice is very common and accepted.

With utilities companies such as ISP's or telecomms it is a bit more tricky. The market has a few competitors that probably on the face of things compete on price. However underneath the price there will be a package that you purchase. It is very common that a company will have a current offer that is offered to new customers that seems to be the same as the one offered to existing customers - its just that it costs less. Existing customers can transfer if they ring up and sign a new contract - but otherwise they continue to pay higher prices.

For instance Eclipse Internet offer £29.95 for their "Home Pro" product. This is very similar to their "Home Pro" product that existing customers have and are paying £31 for. In addition they are offering 100 gb download per month rather than 50 gb that existing customers have. Each extra gb costs £1.25. If you ring up you can transfer as long as you sign up to another 12 months.

When an airline company offer cheap seats to fill the plane at the last minute - we think it is OK. When you offer new customers a better deal and do not inform you existing customers of that deal - we may feel that it is sharp practice. However as long as it is "different" e.g. Eclipse call their new product "Home Pro X", then it is fine.

Whilst monopolies have a position of "dominance" smaller companies do not. If you can manage your customer loyalty effectively you can use price discrimination to increase your profits.

Small firms are often seen as the victims of price discrimination rather than users of it. Perhaps they see an ethical consideration or they are too close to their customers. Alternatively their systems are not well enough developed to be able to manage campaigns.

As we are in turbulent times most companies need to consider pricing very carefully. Fixed transparent pricing is easy to sell. Equally not issuing your pricing at all and quoting has its weakness.