Intuit's TurboTax Price Discrimination is Effective
Intuit segments its TurboTax offerings by the complexity of the tax return - thus creating groups of customers with similar incomes and willingness to pay. By creating a pricing scale that correlates with the product's complexity, Intuit is able to effectively capture significant value from its customers.
Company description: Intuit’s TurboTax products and services help individuals in the U.S. and Canada prepare and file their personal federal and state income tax returns. Products are available through desktop software and online offerings that can be accessed via a desktop, mobile, or tablet.
Value creation: every adult in the U.S. and Canada needs to file a tax return with their federal government. The tax return process is complex and accuracy is extremely important from a legal and a tax-refund standpoint. TurboTax helps individuals file their taxes correctly and secures their customer data.
Value capture model: Consumers pay for the ability to use TurboTax either through desktop software or an online offering and purchase the product annually to ensure that they remain in compliance with U.S. laws and can e-file with TurboTax. Intuit employs a price discrimination policy when selling TurboTax and it also offers low-income taxpayers the opportunity to use its product for free.
Price discrimination policy – TurboTax segments its products by the complexity of the tax filer’s return. This is very useful because it allows the company to basically segment its customer base into income / ability to pay groups. It also allows Intuit to justify its pricing practices because certain consumers need the additional services / offerings in order to file their taxes accurately.
TurboTax products, pricing, and services offered are as follows:
Freemium policy - Intuit also partners with the IRS to allow taxpayers with adjusted gross income of <$30,000 or active military to file their taxes for free – regardless of the complexity of their filing. This is a smart because once a user becomes comfortable with using TurboTax they will be less likely to switch products and more likely to move up the product offering scale over time as their needs change – as TurboTax’s retention rate for users is 77%.
Intuit’s sophisticated value capture model is effective. I believe that offering the product at differing price points maximizes the number of users and by offering different levels of service / products, Intuit can capture each group’s maximum willingness to pay, thus increasing Intuit’s total annual revenue. TurboTax’s value creation – of ensuring an accurate tax return is extremely valuable and the value Intuit is able to capture is capped by (i) customer’s ability to pay or (ii) using an alternative, mainly a tax specialist which is much more expensive – visiting an H&R Block store costs on average $129. Since all of TurboTax’s offerings are priced below its main substitute, TurboTax can thus maximize value capture by charging a customer’s its ability to pay which is best captured through a pricing discrimination policy.