What Is Dual Pricing?

There are many effective pricing strategies out there, one of which is dual pricing. This strategy allows you to increase the demand for your product in a highly competitive environment, as well as compensate for costs.

In this article, we will talk about the meaning and application of this strategy, consider several dual pricing systems, and tell you how to calculate a dual price.

Dual pricing is a strategy in which different marketplaces set different prices for the same products. This is done in order to attract customers, reduce distribution costs, and determine which market will have the greatest impact.

Dual pricing can be used by aggressive companies that can set low prices in order to oust other competitors from the market. When all competitors are eliminated, the price will return to normal.

But such a way of using dual pricing may be considered illegal if the price is unreasonably low. In this case, it will be regarded as an attempt to establish a monopoly on the market, which is not legal.

When it comes to an effective and legitimate way to use this pricing, it can be noted that companies can use it to attract demand. For example, air tickets will be sold at a more expensive price a few hours before departure than a few days or weeks before departure.

Dual pricing can be used to increase the reputation of a product on the market, for example if you want to transfer your product to a more expensive segment of the market.

A surcharge refers to an additional fee added to the base cost of goods or services, often applied to cover specific expenses like credit card processing fees. This means that customers choosing to pay with a credit card might see a higher price at checkout to compensate for these processing costs.

Dual pricing, on the other hand, involves setting different prices for the same product or service based on the payment method. A dual pricing model typically offers a cash price and a credit card price, where the cash price is lower because it does not include the surcharges associated with credit card transactions. Gas stations are a common example, displaying regular and cash prices, where the cash price is presented as a discount to encourage customers to pay with cash, thereby avoiding credit card processing fees. Unlike a surcharge, which is added on top of the listed price, dual pricing explicitly states two different price points for cash and credit payments from the outset.

The two types of dual price system are differentiated pricing and discriminatory pricing. With differentiated pricing, the dual-priced product has different features for each group of customers, while with discriminatory dual pricing, there is only one product, but it has dual prices.

This dual pricing system implies pricing based on the characteristics of the product, based on how similar or interchangeable the products are.

For example, a generic version of a product and the original branded version would both be priced at a lower rate than the dual-priced original branded and luxury dual-priced versions.

This makes sense as the consumer is more likely to buy the cheaper product because it has the same use for them.

With this approach, the characteristics of the product remain unchanged: the price difference depends on the market, or rather on the purchasing power of the customers in the market.

If it is a mass market, then the product will cost less there than on the luxury segment market. Although there will be no differences in the product, it all depends on how much money the buyers in a particular market are willing to pay.

For example, say a sportswear company produces sneakers and supplies its products to different stores. In those stores where products are presented for the middle class, sneakers will cost $50, and in another store, where more expensive brands are presented, the same sneakers will cost $150. There will be demand in both stores, as some customers will be willing to pay $50, and others $150.

When you consider only the legal uses of dual pricing, there is a particular value to extract from the practice:

• Reputation. A new brand that has just appeared on the market can use dual pricing in order to attract more attention and gain a reputation among customers. You can also combine dual pricing with other strategies, depending on your goals.
• Customer attraction and retention. A good way to attract new customers is to set low prices. In this way, it is possible to attract and retain buyers in a certain market.
• Managing rising distribution costs. This factor also mostly applies to new brands on the market. There are often problems with rising distribution costs. In order to increase revenues and mitigate the growth of costs, a company can apply dual pricing.

You can set dual pricing in several steps. Here's what you have to do:

• Step 1. Analyze purchasing power in different markets. The higher the purchasing power, the higher the price you can set for your product without losing demand.
• Step 2. Determine the value of your product. Based on the data obtained from the first step, determine which price will be optimal for each marketplace.In addition, you will need to find the break-even point: calculate all the costs of producing a unit of product, and divide this figure by the unit price at which you want to sell
• Step 3. Determine among which customers your product will be in demand at double the price. You can send samples of your product to potential customers so that they can familiarize themselves with the product before it goes on sale.
• Step 4. Using discriminatory pricing, determine a price for your product at which you will sell the best quality product at the highest possible price in order to make a profit.
• Step 5. You set up dual-priced products. In this stage you have products with lower prices and products with higher prices. To set up those prices you can use different pricing strategies, price penetration for example (price penetration means that you sell your products at a lower price to attract new customers to your brand, this strategy more often used in high-competitive markets, but in our case it also can be applied). Low prices help you to capture customer’s attention, and later he may become interested in your brand and your higher-priced products.
• Step 6. Introduce dual-priced products or services by selling them on the market at a lower price than your highest-priced product. Thus you can test a demand at a lower price point and make some inferences about which dual-priced product customers are most interested in.
• Step 7. If products with a dual price sell equally well, then you can diversify the dual pricing and add additional products to the expensive products.

If some products are not selling well, then it is worth changing the dual price system.

The dual pricing strategy implies a certain analysis of your customers in different markets. If it happens that some kind of dual pricing system may not suit your business, try another one until you find one that will be effective for you. While you search for the right system, you will have to change product prices many times. This task can be perfectly handled by Priceva’s Rule-Based Repricing Software.

Dual pricing is often used as a pricing strategy to differentiate prices based on different customer segments. This can help businesses generate more revenue by charging higher prices to those who are willing to pay more, while still attracting price-sensitive customers with lower prices.

Dual pricing can be set up by any business or organization that wants to offer different prices for the same product or service to different groups of customers. However, the legality and ethical implications of dual pricing may vary depending on the context and location.

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.

An example of dual pricing can be found at many gas stations, where customers are presented with two different prices for fuel: a lower price for those paying with cash and a higher price for those using credit cards. This price difference compensates for the credit card processing fees incurred by the station.

Dual pricing is legal in many jurisdictions, provided it is clearly disclosed to customers before purchase. However, the legality can vary based on local laws and regulations, especially concerning how the prices are advertised and communicated to the consumer. Businesses must ensure they comply with all applicable laws to avoid legal issues.

Dual pricing with credit cards refers to the practice of offering two distinct prices for the same product or service: one for customers who pay with cash (cash price) and a higher one for those who pay with credit cards (credit price). This approach is used to cover the additional costs associated with credit card transactions, including processing fees.

Dual pricing and cash discounts are closely related concepts but are not exactly the same. Dual pricing explicitly lists two separate prices for cash and credit card payments. In contrast, a cash discount implies a reduction from the regular price, often the credit card price, for customers who choose to pay with cash, highlighting the incentive for avoiding credit card fees.