Customer Segmentation as a Revenue Generator for Profit Purposes

Abstract

The role of market segmentation in shaping pricing strategies for new products is critical. This study highlights the significance of tailoring pricing decisions in meeting the unique needs, preferences, and price sensitivities of different consumer segments in order to maximize profitability and market penetration. Understanding customer behavior and preferences in transitioning from high to low prices during new product introductions is crucial. The responses of various customer groups to price changes are essential in influencing product innovation. The model developed in this study serves two purposes: (1) to determine the optimal time to switch from high to low prices, and (2) to determine the optimal price discount when switching from high to low prices for different customer segments. Segmented marketing results in larger profits due to increased sales to loyal customers. However, deal-prone customers may purchase less when segmented.