Price segmentation groups customers who should pay alike and gives each group its own price target. For a distributor that usually means segments built from customer type, size and buying behaviour, crossed with product category, each with a margin target based on what those customers accept and what they cost to serve. Good segments make prices consistent: two similar customers buying the same item get a similar price, for a reason anyone can explain.
Why segmentation matters in distribution
Without segments, prices drift account by account. Each rep remembers what a customer paid last time and starts from there, and after a few years the same item sells to similar customers at very different prices. The price waterfall guide calls this pocket price dispersion.
Segmentation replaces that history with a rule: customers in this group pay around this margin on items in this category. Reps still adjust for the deal in front of them, but they start from the same place.
What to segment on
- Customer type
Contractor, OEM, reseller, end user, government.
- Size
Annual spend with you, and their total spend if you know it.
- Buying behaviour
Order frequency, order size, share of planned versus urgent orders.
- Cost to serve
Terms, returns, delivery needs, technical support.
- Product category
How often buyers compare prices on it, and how fast it turns.
- Region
Local competition and delivery cost.
Pick the two or three dimensions that explain the biggest differences in what your customers accept. More than that and the segments get too small to have reliable prices.
An example segment map
A power transmission distributor ends up with four customer segments, each with a target margin on bearings:
The targets come from the margins these customers already accept, not from a guess. Small contractors order often, in small quantities, and rarely shop around on a few bearings, so they carry the highest target. OEMs order large, planned quantities and compare hard, so their target is lower, and still fair, because they cost little to serve per unit.
A small contractor asking for 6205-2RS bearings starts at $11.60 ÷ 0.66 = $17.58. An OEM on a scheduled order starts at $11.60 ÷ 0.78 = $14.87. Each price then moves with the order in front of the rep.
How to build segments
- Pull a year of sales
Invoice lines with customer, item, price, cost and quantity.
- Test the dimensions
Check which customer traits line up with real differences in margin.
- Draw a few groups
Three to six segments, each large enough to have a stable price.
- Set targets from the data
Use the middle of what each segment accepts today, not the best case.
- Review every quarter
Move customers whose behaviour changed, and retire segments nobody fits.
Rules built by hand work well up to a few hundred active customers. Above that, statistical grouping finds segments people miss, such as small accounts that buy like OEMs, as long as the result is a set of groups a rep can understand.
A segment is only useful if a rep can say which one a customer is in, and why.
Fences: keeping customers in their segment
A segment price only works if customers cannot simply move to a cheaper segment. Pricing people call the rules that stop them fences. In distribution, the common fences are:
- Account type, checked when the account is opened.
- Minimum annual volume to qualify for a size-based segment.
- Order conditions, such as scheduled orders for OEM pricing.
- Terms, where better prices come with shorter payment terms.
Stay on the right side of the law
Charging competing business buyers different prices for the same goods can raise questions under the Robinson-Patman Act in the US. Segments built on documented differences in volume, cost to serve or terms are much easier to defend than prices set account by account. The dynamic pricing guide covers this in more detail. Take legal advice for your own situation.
From segments to prices
Segments set the starting point. The price on a quote line still has to account for the order size, the stock position and the competitor in the deal. AI pricing models learn segments from your own won and lost quotes, keep them up to date as customers change, and start every quote line from the right target, with the segment shown as the reason.
See segment prices on your own quotes
Common questions
Price segmentation means charging different prices to different groups of customers, based on what they buy, how they buy and what it costs to serve them. In B2B distribution the groups are usually built from customer type, size, region and buying behaviour, and each group gets its own margin target.
Segments can be based on the customer (type, size, industry), the order (quantity, urgency, channel), the product (category, brand, how often buyers compare it) or the region. Most distributors combine customer type and size with product category, because those explain most of the difference in what customers accept.
Economists use the terms almost interchangeably. Legally they differ: in US B2B sales, the Robinson-Patman Act restricts charging competing buyers different prices for the same goods when it harms competition. Segments built on real differences in cost to serve, volume or terms are much easier to defend.