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How Many Price Segments Should You Have?

Once you really understand the power of price segmentation and the fundamental role it plays in truly effective pricing, it’s somewhat natural to begin pondering how many price segments you should have. Even pricing professionals with robust segmentation models already will often wonder if they have enough segments, or maybe even too many.

Of course, it would simplify matters a great deal for everyone if the answer to the question were something very concrete such as, “You should shoot for 6,987 price segments.” But that’s just not possible because the answer is unique to every business.

Here’s what we do know…

The more price segments you have, the greater your ability to differentiate prices to buyers with different price sensitivities and willingness-to-pay. And the more precisely you can align to buyers’ walkaway thresholds, the greater your ability to win the business you want to win, at the maximum revenues and margins possible.

It’s axiomatic: A pricing model with more price segments has more inherent financial power and leverage than a model with fewer segments.

The caveat? The catch? The fly in the ointment? The Baby Ruth in the swimming pool?

Execution. You have to be able to execute the resulting pricing model in the field. Having 25,000 price segments on paper is of little value if there’s no way for salespeople to match the quote they’re working on to the right segment and price accordingly. Fortunately, with the rise of CRM, SFA, CPQ, Q2O, and all of the other tri-character technologies, fielding a model with a million segments is well within reach.

To learn more about price segmentation, what other companies are doing, and what’s really possible these days, check-out these PricingBrew Journal resources:

The most accurate answer to the question of how many price segments you should have is, “As many as you can possibly execute.” But it’s probably worth noting that I’ve never seen…or even heard about…a company with too many price segments.

So, the most pragmatic answer may in fact be, “More than you have now.”

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