How to segment prices by creating different versions of our solutions?

This implies ensuring a fair relationship between price and value across all solutions in the portfolio and allowing customers to choose the option that best fits their needs. In other words, letting them self-segment.

Based on this logic, one might think that the correct approach is to charge different prices for the same product or service. However, in practice, what is done is not changing the price of an identical solution, but modifying its design or establishing conditions that the customer must meet to access lower prices.

Price segmentation barriers
The most common ways to justify price differences are known as tactics or segmentation barriers. These include product design, buyer identity, point of purchase, time of purchase, quantity purchased, and bundling.

Each of these tactics allows setting different prices without destroying value or generating conflicts between customers. In this case, we will focus on the product design tactic.

Adjustments to key product attributes
The product design tactic is based on offering different versions of a solution by modifying the level of the attributes that customers value the most.

A good example of this is Apple’s iPad portfolio. The brand manages to offer prices ranging from the lowest tier to levels that can be up to four times higher. How do they do it? By changing basically four attributes.

First, they offer multiple screen size options. Then, they present two types of connectivity: Wifi only or Wifi plus cellular connection. They also vary internal storage capacity. And finally, they offer different processing options with different performance levels.

Differentiation through branding
It is not always necessary to modify functional attributes. When what customers value most is the brand, it is possible to justify a different price range simply with different brand identities within the portfolio.

In the case of anti-corrosion paints, the product is the same from a functional standpoint, but it is offered under two brands: a premium one and a flanker.

In fact, there are cases in which three brand levels are used to cover a wider price range without altering the product formula.

Complementary services as differentiators
Another way to create differentiated versions is through the level of service. In the case of an industrial service, basic technical support can be included in the original price, and a premium service with longer duration or broader coverage can be offered for an additional fee.

For example, $299 can be charged for a four-year extended support service. This type of relational attribute allows justifying a higher price for those who value more comprehensive support.

Avoiding cannibalization between versions
Regardless of the attribute used to justify price differences—functional, emotional, or relational—it is essential that this attribute is truly important to the customer.

If two versions are presented with very different prices and the difference is based on an irrelevant attribute, customers will tend to choose the cheaper version. This can lead the lower-priced option to cannibalize the higher-value one.

Properly applied product design allows structuring a portfolio with different price levels by adjusting the attributes that the customer truly perceives as valuable.

Next step: segmenting without changing the product
We have already understood how to create different versions of a solution to justify different prices. But there is still another equally useful strategy to explore: charging different prices without modifying the product, but instead changing the conditions the customer must meet. That will be the next step in further refining price segmentation.