Products being part of it are all interrelated, their prices being in conjunction with each other. Therefore, the strategy for setting a product’s price often has to be changed when the product is part of a product mix. Then. the company looks for a set of prices that will maximize profits on the total product mix, instead of on the individual product. Since the various products in the mix have related demand and costs, but face different degrees of competition, pricing is difficult. Therefore, we will have a close look at the five major product mix pricing strategies (or situations).
5 Product Mix Pricing Strategies
Product Line Pricing
Since firms usually develop product lines rather than single products, product line pricing plays a decisive role in product mix pricing strategies. For example, when you look at a car brand such as Audi, you will see a relation between the different series and their prices. The entry model, the Audi Al, does cost you less than the top-range car A8.
Optional Product Pricing
Optional-product pricing is the pricing of optional or accessory products along with the main product. In many cases, you can buy optional or accessory products along with the main product. For instance, when you order your new Audi car, you may choose to order a GPS system and an advanced Entertainment system. However, for the company, pricing these options is not easy. They must decide carefully which items to include in the base price and which to offer as options.
Captive Product Pricing
We speak of captive product pricing when companies make a product that must be used along with the main product. On the contrary, in optional product pricing, we should think of products that can be bought/sold with the main product. Examples for captive product pricing are razor blade’ cartridges and printer cartridges. Captive product pricing is an extremely powerful strategy in the set of product mix pricing strategies. Producers of the main products, e.g. printers and razors, often price them very low and set high markups on the supplies you need in order to operate the main products.
By-product pricing refers to setting a price for by-products to make the main product’s price more competitive. It is the result of the fact that producing products and services often generates by-products. Often, these by-products (as singly sold products) would not have any value and get rid of them is costly. This would then increase the price of the main product. But by using by-product pricing, the company tries to find a market for these by-products to help offset the costs of disposing of them and make the price of the main product more competitive.
Product Bundle Pricing
The last one of the product mix pricing strategies product bundle pricing. Using product bundle pricing, companies combine several products and offer the bundle at a reduced price. The best example is probably a menu at McDonald’s: you get a bundle consisting of a burger, fries and a soft drink at a reduced Internet Also, companies such as Sky, Telecom, and other telecommunications companies offer TV, telephone and high-speed internet connections as a bundle at a low combined price. For the company, product bundle pricing is a very effective product mix pricing strategy: it can promote the sales of products consumers might not otherwise buy.