[MUSIC] In the previous module, we have seen that price discrimination offer significant benefits for an organization especially from an economic perspective. So the question now becomes how can a company customize prices for a particular product? Fortunately, there are a number of tools available in order to align prices with the value that a customer places on a particular product. These tools can be categorized along three different types of price discrimination or we call it as well, three different degrees of price discrimination. The first degree of price discrimination means that a company customizes pricing to each customer equal to the customer's willingness to pay. Each customer is charged a different price for the very same product. As a consequence, it is also known as perfect price discrimination. Unfortunately, perfect price discrimination is very difficult to implement as it requires knowledge about each individual's willingness to pay. Once tool to achieve that is running an auction, for instance, where customers have to publicly share their willingness to pay for a particular product. That brings us to the second degree price discrimination. Sometimes it is called as well price discrimination by self-selection. The first alternative for the first tool in this second degree price discrimination is trying to over multiple product versions or multiple product alternatives to the customer. Just think about British Airways, for instance, offering an economy class ticket, a business class ticket, and a first class ticket. Costumers now have the choice to self select them for particular product. The second tool available is product bundling and I'm pretty sure that all of you have already purchased bundles before. Just think of McDonald's offering their value meals, combining a hamburger, french fries, and Coke for instance. The third tool we have available is purchase discounts or quantity discounts. This really refers to the fact when we purchase multiple products and we receive discounts in return. The typical examples would be going to a supermarket and paying for three products, the price of two, for instance. This brings us to the third degree price discrimination. Sometimes this is called as well price discrimination based on customer characteristics. The first alternative is based on buyer identification. Typical example here would be trying to charge different prices for customers going to the cinema. Based on their age, so you might have a certain price for senior citizens, another price for adults, and yet another price for students. Another tool within the third degree price discrimination is differentiating prices according to purchase location. Just think of prices that you might be finding in an online channel, versus prices that you're finding in a brick-and-mortar store. And I'm pretty sure, that you've already seen, looking at these different channels, the same product, that prices might be different. And finally, the last tool would be looking into time of the purchase. You would expect as well that prices are different depending on when we actually purchase a product. The typical example would be holiday packages. Going on holiday during peak season is typically more expensive than purchasing, for instance, a holiday package in the off peak season.