Table of contents
What is Dual Pricing?
Dual pricing is the practice of setting different price points for products in different markets. Naturally, a higher price on a product or service brings more profits. Besides, dual pricing allows a better distribution costs to allow the company to determine which market to impact the most.
Companies use dual pricing in various instances. For instance, an aggressive competitor can lower prices for its products and services to make a market splash. In such a case, dual pricing is used to drive out any competitors. When an aggressive competitor is the one remaining on the market, it will return to normal price.
At this point, dual pricing program is illegal under a particular context. If a company uses dual pricing to monopolize the market, such a practice is illegal. Besides, dual pricing is illegal if it is employed to dump goods in a foreign market.
Dual pricing can also be demand-based. It means a company can offer different prices for a product or service when looking to boost its reputation and propagate new customers. To illustrate, an airline company can provide one price to an early client and another, usually a higher price, to a customer who books a flight at the last minute.
Sometimes, dual pricing is an acceptable practice, allowing a company to boost its reputation and attract clients. In other instances, dual pricing is illegal, especially when used to monopolize the market.
Dual Pricing definition
The definition of dual pricing dictates that it is a practice of setting different prices in different markets for different goods and services. From a more comprehensive perspective, when dual pricing turns into shadow pricing, it puts an aggressive company to overcome the market and drive out the competitors.
It is the point when dual pricing becomes an illegal practice. In turn, when dual pricing is used for legitimate reasons, it can offer value to a business.
The Value of Dual Pricing
When putting away an illegal part of dual pricing, there is a particular value to extract from the practice:
- Reputation. When a firm enters a new market, it needs to boost its reputation. Often, companies engage in dual pricing to bring more attention to their brand. Even if a business functions in a different market, it can use different pricing strategies depending on the objective.
- Customer attraction and retention. Companies boost their reputation to get new clients. Getting new customers is often done through attractive prices. Firms can use dual pricing to boost their clientele in such a case.
- Managing rising distribution costs. While operating in the dynamic market, any company can face a rising factor of distribution costs. Companies appeal to dual pricing to mitigate the rising cost and keep the demand.
The Bottom Line
Dual pricing can be a legal tool and an illegal one based on the context and circumstances. When used to drive away competitors, it turns into shadow pricing. Legitimate dual pricing is used to boost reputation and expand clientele.
Find answers to some of the most common questions people have regarding the use of Competera.
Is shadow price the same as dual price?
Dual prices are also called shadow prices. Essentially, it shows how much one should be willing to pay for additional units of resource or service.
How do you calculate the dual price?
A dual pricing model can be calculated by evaluating the increase in value in comparison to an additional unit of a limiting resource in the context of its original cost.