Fenced Pricing: Segmenting Smarter to Maximize Revenue

How businesses can use conditional pricing to unlock value, drive early bookings, and improve yield without alienating their customer base.

In revenue management, many businesses start their journey with the basics—like seasonal pricing, which aligns price fluctuations with predictable shifts in demand. It’s a useful entry point. But once those fundamentals are in place, the next logical step is fenced pricing.

Fenced pricing is a more refined technique that allows businesses to segment their market and apply pricing strategies that match different customer behaviors and expectations. This approach is particularly valuable for companies that are starting to embrace the full potential of demand-based pricing but aren’t yet ready for the complexity of dynamic or personalized pricing models.

Whether you're in travel, hospitality, entertainment, or even adjacent industries just beginning to explore yield management, fenced pricing offers a structured and effective way to maximize revenue while still delivering value to your customers.

This article explores how fenced pricing works, when it makes sense to implement it, and what challenges to watch out for—so you can use it to enhance your pricing strategy in a sustainable way.

What Is Fenced Pricing and Why Does It Matter?

At its core, fenced pricing means offering different prices for the same product or service, but under different conditions or restrictions — called “fences.” The idea is simple: you create boundaries that allow certain customer segments to access lower prices, without undercutting those who are willing to pay more.

Think of it as a way to say:

“Yes, this seat is cheaper — but only if you book 21 days in advance and accept that it’s non-refundable.”

These fences allow businesses to capture more consumer surplus — that is, the extra money a customer would have been willing to pay. Instead of offering a single price to everyone, fenced pricing lets you better match willingness to pay with product access.

Examples of Common Fences:

Advance purchase: Lower prices for those who commit early.
Refundability: Non-refundable tickets are cheaper.
Flexibility: Lower fares come with change restrictions.
Booking channel: Certain fares only available via website or mobile app.
Volume or group purchase: Discounts for bulk buyers.

These fences are designed not to exclude customers, but to guide them toward price points that fit their behavior and preferences — while protecting revenue from those who value flexibility, convenience, or urgency.

Why It Matters

Without fences, businesses face a painful trade-off:

either lower prices for everyone and sacrifice revenue, or set a high price and risk losing more price-sensitive customers.

Fenced pricing breaks that deadlock. It allows a company to serve both ends of the market — price-sensitive and time-sensitive customers alike — without cannibalizing its own profitability.

Done right, fenced pricing is a powerful and scalable tool. It’s relatively easy to implement compared to more advanced pricing models, and it delivers significant uplift in revenue.

Types of Fences: Hard vs. Soft

Not all fences are created equal. In revenue management, we typically divide them into two main categories: hard fences and soft fences.

Hard Fences

These are objective, easily verifiable conditions that separate customer types. Think of them as black-and-white rules.

Examples:

Advance purchase: Buy 14 or 21 days before departure.
Non-refundable fares: Once purchased, no refund is allowed.
Saturday night stay: Lower price if the trip includes a Saturday night.
Student or senior discounts: Verified via ID.
Geographic restrictions: Only bookable from specific countries.

Why they work: Hard fences are clear and enforceable. They prevent customers from “gaming” the system and are easy to implement in reservation platforms.

Soft Fences

These are subjective or behavioral fences based on customer characteristics that are not explicitly declared — but inferred.

Examples:

Booking behavior: Customers who book far in advance are assumed to be more price-sensitive.
Device or channel used: Mobile users may get special app-only fares.
Browsing history or loyalty status: Returning visitors may see a different offer.
Time of day: Someone booking late at night may be treated differently than a midday shopper.

Why they work: Soft fences let you segment customers without asking them to self-identify. They rely on patterns, not declarations. While more complex, they open the door to personalization and dynamic pricing.

So which one is better?

The truth is — you need both.

Hard fences are a solid foundation. Soft fences offer finesse. The most effective pricing strategies blend both to create segmentation that’s hard to cheat, but smooth and flexible for customers.

Fencing in Action: The Airline Example

Let’s bring it to life with a concrete example: airline pricing — the birthplace of modern revenue management.

Imagine you want to fly from Paris to Rome. You search for flights and see wildly different fares: €49, €149, €349. Same flight, same seat… so what’s going on?

Fences at Work:

€49 fare: Must be booked 21 days in advance, non-refundable, no checked bag, Saturday night stay required. Target: price-sensitive leisure traveler.
€149 fare: Bookable up to 7 days in advance, includes checked bag, allows flight changes with a fee. Target: semi-flexible traveler, maybe visiting family or on a budget business trip.
€349 fare: Fully flexible, refundable, includes fast track and priority boarding. Target: corporate traveler who books late and values flexibility over price.

What separates these customers isn’t the product — it’s the conditions attached to the product.

Fences let the airline serve all three segments — without cannibalizing their top fares. The business traveler can’t (or won’t) buy the €49 fare because of the constraints. And the leisure traveler would never pay €349 — they’d rather change dates.

Result: More passengers, more revenue, better capacity usage.

That’s the power of fences.

The Risks of Poor Fencing

Fences are powerful, but if you mess them up, you lose revenue — fast.

Common pitfalls include:

Too loose fences: When restrictions aren’t tight enough, customers who would have paid more buy the cheaper fare. Example: A business traveler buys the €49 advance purchase fare by booking early — airline loses high fare revenue.
Too tight fences: If rules are too strict, you scare away customers. They either don’t buy or choose competitors. Example: Leisure travelers find the rules confusing or harsh, so they go elsewhere.
Complex fences: Overcomplicated rules confuse customers and frustrate sales agents. Example: Customers abandon purchase or call support repeatedly, increasing costs.

Balancing act: Fences must be tight enough to segment customers effectively, but not so harsh that you lose sales or willigness to pay.

Mastering this balance is key to maximizing revenue and maintaining customer satisfaction.

Benefits of Fenced Pricing

Fenced pricing offers strong advantages for revenue optimization. By segmenting customers based on their behaviors and willingness to pay, businesses can create pricing structures tailored to each group.

Take business vs. leisure travelers for example:

Business travelers value flexibility and last-minute bookings and often accept higher prices.
Leisure travelers plan in advance and are more price sensitive.

Fenced pricing allows you to offer:

Flexible, higher-priced fares for business travelers, like refundable or last-minute tickets.
Discounted advance purchase fares for leisure travelers who book early and want lower prices.

This win-win means businesses maximize revenue while delivering real value by aligning offers with customer needs.

By applying fences strategically, you boost revenue potential and customer satisfaction simultaneously.

Challenges of Implementing Fenced Pricing

While fenced pricing might seem straightforward, it comes with important challenges businesses must navigate carefully.

One key issue is the risk of being perceived as overpriced. When you introduce different price tiers for the same product or service, customers may compare prices to competitors. Without a clear value proposition, this can hurt your brand’s competitiveness.

Another challenge is incentive pricing and price dilution.

If you offer too many discounted options, customers may come to expect lower prices as the norm, undermining your ability to sell at higher prices. This devalues your premium offers and reduces overall revenue potential.

To overcome these challenges, businesses need robust systems and processes to manage multiple price tiers effectively. That means:

Having the right software tools to monitor pricing and sales
Clear pricing rules that can be adjusted when necessary
Active management of the fences to maintain pricing integrity
Without this, managing fenced pricing can become overwhelming and harm both revenue and customer trust.

To wrap up

Fenced pricing is a powerful tool in the Revenue Management arsenal. It allows businesses to segment their customers and capture more value by offering tailored prices based on different criteria like purchase conditions, customer types, or usage constraints.

However, success with fenced pricing depends on choosing the right fences that make sense for your market and customers, and on managing these fences carefully to avoid confusion or customer frustration.

When done well, fenced pricing boosts revenue, maximizes profits, and helps your business stay competitive in complex markets.