Have you come across promotional offers like 'buy one get one free' for shirts. This method not only helps in stock clearance but also increases the revenue for the company.

This form of price discrimination requires a great understanding of market and market segments. Here the seller tries to maximize his profits by selling the same product or services at different prices to people from different market segments. This practice is very common. For instance, train and air fares are lower for senior citizens. Students too enjoy discounted rates for movies and bus rides. This is so because both students and senior citizens are very price sensitive or have a higher elasticity of demand than the others.

Market segmentation is not based on age alone. Socio-economic factors also play a major role. Often prices are increased for products at a retail store near posh localities or when it is the only store in the entire neighborhood. People have to pay more as they have no other option. Third degree price discrimination is also useful in increasing business revenue. During festivals like Christmas and New Year air fares are hiked.

Psychological pricing tries to create a positive psychological impact on the consumer. For example, products or services are often priced at $5.95 or $5.99 instead of $6.

This pricing policy is used in e-commerce or online business. Dynamic pricing depend heavily on online databases for their workability. Companies which transact over internet often maintain huge databases containing customer information like past purchases, socio-economic background (salary, residential address etc). This information helps the seller in setting the price for individual customers or business customers. Keeping in mind their past purchases they set prices for their product accordingly.Various other factors play a vital role in e-commerce pricing. Forces of demand and supply are primary variables that decide pricing. Demand and supply graphs are constantly monitored and prices are set accordingly. When the demand increases for a particular product or service at the touch of a button its price is increased over the internet. Similarly with decline in demand prices are lowered to facilitate sales of the product.

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