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What Is Variable Pricing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 August 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
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Variable pricing is a marketing approach that permits different rates to be extended to different customers for the same goods or services. The approach is often employed in cultures where dickering over the price of goods is considered the norm, or potential buyers are allowed to participate in an bidding situation, such as in an auction. Even in countries where fixed pricing is the standard, variable pricing may come into play when the customer is committing to the purchase of large volumes of goods or services. When this is the case, the customer must usually comply with specific criteria in order to enjoy pricing that varies from the standard cost.

The variable pricing strategy is different from the fixed price policy that prevails in many situations. With fixed pricing, the seller evaluates all relevant factors, determines if a buyer should receive a rate that is different from the standard price, then extends that price for all purchases made over a specified period of time. Usually a contract is used to lock in those discounted rates for a period of time agreed upon by both the buyer and the seller. In contrast, variable pricing is normally extended on a one-time basis. Should the customer wish to place a second order at a later date, the circumstances are assessed anew, and alternate pricing is issued if the seller believes it is merited.

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One of the classic examples of the use of variable pricing has to do with street vendors who sell various types of small goods. Often, there is a standard price posted for each item on sale. If the vendor really wants to sell an item, and determines that a prospective buyer is not willing to pay the posted price, he or she may engage the individual in a negotiation of the sale price. Sometimes referred to as dickering, the buyer and seller make offers back and forth until they can settle on a price that both believe is fair. Throughout the process, the buyer tries to drive the price down as much as possible, while the seller attempts to obtain the highest possible return from the sale.

The real estate market also functions with the use of variable pricing. Prospective homeowners will often submit bids for properties that are less than the posted asking prices, in the hopes that the owners will accept a smaller amount. This often leads to a series of offers and counteroffers that sometimes results in a sale taking place. At other times, the two parties are unable to come to terms, and no sale takes place.

Variable pricing does provide some benefits, but also has the potential for drawbacks. On the one hand, sellers can use this pricing strategy to move goods or services that have failed to perform as originally anticipated, allowing them to earn a modest profit or at least recoup their investment in the products. A possible down side to variable pricing is that it can lead to losing other customers who paid full price for their purchases, if they find out that a more recent customer was able to receive a lower price.

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Discuss this Article

Glasis
Post 2

More often than not, if a vendor is willing to negotiate the price of a product, the quoted price is much more than they actually expect to, or need to, receive.

A good example of this is car sales. Few customers have ever paid the full sticker price for a vehicle.

The special family and employee and other discounts car dealers offer as favors to good customers are really nothing more than the price reductions they plan to give everyone to get them to buy a car from their lot.

Telsyst
Post 1

I agree with the article. If I was a customer and I found out someone else was paying less for the same product I am buying, I would be angry, no matter what reason is given.

Unless, as the article says, you are talking about bargaining with a street vendor for a product that probably isn't worth the assigned price, the price should stay the same for all buyers.

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