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This gives an opportunity to explore direct and indirect
Your business partner is strongly opposed to your proposal to charge your largest customers lower prices for your web-based services than what you will charge your smaller customers. She is arguing it is unethical, unfair, and possibly illegal.
Make a case that both groups of customers will be satisfied with the deal and that this is a perfectly legal form of pricing in a business-to-customer relationship.
Why will both groups of customers be satisfied with the deal?
Direct price discrimination occurs when a firm break up consumers into identifiable groups. for instance , rail discounts for OAPs. Indirect price discrimination occurs when a firm offers a menu of various choices and allows the buyer what to shop for .Price discrimination is perfectly legal, and as long as it is not used in a discriminatory fashion, it is perfectly legal.
To what degree is this type of price discrimination?
This is second-degree price discrimination as it involves charging a different price for different sets of consumers (largest customers vis-à-vis smaller customers) for the same commodity (web-based services) as determined by the quantities purchased. Ideally, second-degree price discrimination provides for levying different prices for different quantities of a commodity purchased, e.g. discounts applied on bulk purchases.
How will the plan increase revenue?
The plan will incentivize the larger customers to increase their use of services and consequently resulting in more revenue generation. Additionally, it is possible that the discounts offered would prompt the current large customer to refer more clients to us from their networks. Considering that the fixed customers incurred by the firm will remain constant thereby potentially leaving more revenue as profit.
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