Customer Segment Pricing Policies

Volume Discount Structures

Volume discounts are among the most common pricing policies. They incentivize customers to consolidate purchases with you, they reflect economies of scale in serving larger accounts, and they provide a defensible rationale for price variation. But poorly designed volume discounts can destroy margin without changing customer behavior.

Principles for Effective Volume Discounts

• Set thresholds above natural purchase levels: If customers naturally buy 100 units, don't set the first threshold at 100. Set it at 125 to encourage incremental volume.
• Ensure economic justification: The discount should roughly reflect cost savings from larger orders—reduced transaction costs, shipping efficiency, etc.
• Create meaningful gaps: Too many tiers create complexity. Too few leave money on the table. 4-6 tiers typically works well.
• Consider commitment vs. achievement: Discounts based on commitments (promising volume) differ from discounts based on achievement (hitting volume).

Annual Volume	Discount	Approval Required	Rationale
Under $50,000	List Price	None	Standard transactions
$50,000-$200,000	5%	Sales Manager	Meaningful but not strategic
$200,000-$500,000	10%	Regional VP	Important accounts
$500,000-$1,000,000	15%	VP Sales	Strategic relationships
Over $1,000,000	Custom	EVP + Pricing	Major accounts; individual analysis

Geographic Pricing Policies

Serving different geographies involves different costs—shipping, duties, local service, currency risk. Policies must address how to reflect these differences while maintaining consistency.

Geographic Pricing Approaches

• FOB Origin: Price at shipping point; customer pays freight. Simple and transparent but may disadvantage distant customers.
• Uniform Delivered: Same price everywhere regardless of distance. Simple for customers but may disadvantage nearby customers subsidizing distant ones.
• Zone Pricing: Different prices for different zones based on distance/cost. Balances simplicity with cost reflection.
• Basing-Point: Price calculated from one or more base points regardless of actual shipping origin. Historically common in industrial goods. Policy should specify which approach applies, how zones are defined, and how exceptions (expedited shipping, special handling) are priced.

Channel-Based Pricing Policies

Different sales channels—direct, distributor, retail, online—have different economics and may warrant different pricing. Policies should address:

• Channel margins: What discount from list price does each channel receive?
• Price parity: Must different channels charge the same retail price, or can they vary?
• Cross-channel protection: How do you prevent arbitrage between channels?
• Online-specific considerations: Does online pricing differ from physical retail? Increasingly, customers expect price consistency across channels. Significant channel price differences create conflict—customers research in expensive channels and buy in cheap ones, or feel deceived when they discover the same product cheaper elsewhere.

Strategic Account Policies

Large, strategic accounts often demand—and receive—special treatment. Policies should clarify what makes an account 'strategic,' what special treatment strategic accounts can receive, how strategic account deals are approved and monitored, and how to prevent strategic pricing from becoming standard.

Be cautious about designating too many accounts as 'strategic.' When everyone is special, no one is—and the exception process becomes the standard process, defeating the purpose of policies.

Key Takeaways

• Volume discounts should be set above natural purchase levels to encourage incremental volume
• Geographic pricing must balance cost reflection with customer simplicity
• Channel pricing policies should maintain consistency and prevent arbitrage
• Strategic account policies require clear criteria and shouldn't become the default