Question

‘A hair oil bottle of 100 ml of a company is priced at Rs. 50, while a 1000 ml/1 litre bottle is priced at Rs. 400.'
Identify and explain the method of pricing discussed above.

Hint:

To remember the categories of Differential Variable Pricing, think of the acronym TL-CVP: Time of Purchase $\quad | \quad$ Location of Sale $\quad | \quad$ Customer Segment $\quad | \quad$ Version of Product In this hair oil example, changing the bottle volume is a classic application of Product-Version Pricing.

Answer 1

Step 1: Analyzing the Pricing Scenario:
The given scenario describes a scenario where different quantities of the exact same product are sold at prices that are not mathematically proportional to each other.

• A small volume package ($100\text{ ml}$) is priced at $\text{Rs. } 50$.
• A larger bulk volume package ($1000\text{ ml}$, which is 10 times the volume) is priced at $\text{Rs. } 400$.
• If the pricing were strictly linear, the $1000\text{ ml}$ bottle would cost $10 \times \text{Rs. } 50 = \text{Rs. } 500$. However, by pricing it at $\text{Rs. } 400$, the company incentivizes consumers to buy in larger volumes.

Step 2: Identifying the Method of Pricing:
In entrepreneurship and marketing, this practice of charging non-proportional rates based on the version, packaging size, or quantity of the product is known as Variable Pricing (also classified as Product-Form Pricing or Product-Version Pricing under the broader umbrella of Differential Pricing or Segmented Pricing).

Step 3: Explaining the Method:
Variable or Differential Pricing is a demand-oriented pricing strategy where a firm charges different prices for different versions of the same core product. These price differences are not driven by the underlying manufacturing costs, but rather by differences in consumer segments, packaging, purchase locations, or buying volumes. In this case, the larger version (product form) is offered at a discount per unit volume to encourage bulk purchases and reward customer loyalty, thereby maximizing overall market volume and inventory turnover.