Play (and Price!) to Your Audience
Updated: Aug 12
Audience Segmentation: Embracing Diversity
As businesses grow, their customers diversify. You may have designed your product for diehard fans, but as you gain traction, you might find that more casual customers are also interested in what you’re selling. For a variety of reasons that we’ll dig into soon, customers have meaningfully different preferences, meaning different willingness to pay.
Say you’re selling a videogame that is the latest installment in a series with a passionate fanbase. Those superfans are willing to pay $100 for the new game, and they’re eager to experience as much of this videogame’s experience, world, and characters as possible. On the other hand, casual gamers might be willing to pay up to $40 for the game, and they mostly just want to play the darn game. You could create two game packages: one with just the game for the casual fans, and one with lots of bonus content, artwork, and character profiles that add richness to the world that superfans are dying to immerse themselves in. That way, you could charge $40 for the basic version and $100 for the deluxe version, capturing all possible value from both audience segments.
Breaking it down
Simple as it may seem, there are a bunch of important ideas in this scenario that can help you expand your product offerings, better understand your customers, and capture as much value from the market as possible. At the core is audience segmentation, the practice of identifying smaller, more specific audiences within your broader market and addressing each market separately. Audience segmentation is primarily a marketing technique, but it can help enormously with product development, pricing, and forecasting.
With pricing, a key consideration is different audiences’ willingness to pay. Circling back to the videogame example, casual fans are willing to pay less than superfans, providing an opportunity for price discrimination: if we can identify who is a superfan and who is a casual fan, we can direct each customer to the product version best suited to them and their willingness to pay.
Audience segmentation provides great opportunities for price discrimination, but finding these audiences is its own challenge. We can design audiences however we see fit since they’re just groupings of the broader market we’re serving, but audience segmentation experts tend to start with four categories of defining characteristics:
Geographic: where in the world are customers? People in North America tend to have greater buying power than people in Eastern Europe, for example, so we may want to set our prices differently between those regions.
Demographic: age, gender, race, sexuality, and many other fundamental aspects of a person are likely to impact their eagerness to buy a product
Psychographic: this one is trickier, but it refers to customers’ attitudes towards purchase occasions and the products they’re browsing
Behavioral: often focused on the customer’s past behavior with the brand, this can distinguish new from returning customers, use cases, and benefits sought
Zeroing on some specifics, it may also help to ask:
What aspects or features of my product do these audience segments value?
Why do customers value that product? What jobs does it do for them?
Under what circumstances are they trying to buy the product?
Do they have several competing options available to them?
Is the need urgent, or could they wait another day or two?
How long will it take them to convert? Will they purchase the day they start looking (e.g. groceries) or months later (e.g. a car)?
(If you’re focusing on marketing) Do these audience segments devote their attention to different media?
For example, a home goods retailer can reliably find customers on HGTV, while a car company will likely have better luck advertising during a Formula 1 race
It’s never that simple
Marketers have been acting on their audience segmentation efforts for decades, but price is trickier than advertising to customize. Ecommerce veterans often experience customer complaints due to changes or inconsistencies in a product’s advertised price, so intentionally creating different prices for different customers can be asking for trouble. That said, businesses with inherently dynamic pricing such as ridesharing apps Lyft, Uber, and Via (shoutout to where the Intelligems cofounders met!) can use audience segmentation as an input into their pricing strategy without issue since each ride’s price is different already.
We at Intelligems believe that it’s only a matter of time before dynamic pricing extends into more ecommerce verticals, and when it does, audience segmentation will be crucial to meet customers where they are in terms of their eagerness for different products. If you’re interested in leading the charge on dynamic price differentiation based on audience segmentation, let’s get started!