Product line pricing

Product line pricing
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Product line pricing is a tool for setting product prices, consisting in dividing goods and services into different cost categories in order to create various quality levels for many products, but within the same production line. In order to effectively establish prices for individual product lines, the company must introduce significant price differences between the established categories in order to inform potential buyers of quality differences.

The product line price list provides marketers flexibility in setting prices. The marketer's task is to maximize profits for the entire product line, not to focus on the profitability of a single product. Before determining the price of a product for a given product line, the relationships between products in this line should be assessed (W. M. Pride, O. C. Ferrell 2008, s. 591). "When products in a line are complementary, sales increases in one item raise demand for other items" (W. M. Pride, O. C. Ferrell 2008, s. 591).

Types of strategies

Applying a pricing policy for a product line requires marketers to choose a specific strategy that they will implement. Those can be (W. Pride, R. Hughes, J. Kapoor 2009. s 389-390):

  • Captive Pricing - in the case of using internal prices, the price of the basic product in the line is low, while the price of products necessary to operate or improve the base product is high. The main goal of this strategy is to attract as many customers as possible to a low-price product, and in the next stage to get a profit from the products that are necessary to use the basic product.
  • Premium Pricing - applies when the highest quality product or the most universal version of similar products from the same product line has the highest price. Other products in this line are valued in a way that attracts the attention of price-sensitiveve customers or buyers looking for product characteristics. Marketers who use the premium strategy obtain a significant part of their profits from products at a premium price.
  • Bait Pricing - this strategy is to attract customers by placing a low price on one item in the product line with the intention of selling a more expensive product. Potential customers are convinced that they will pay less for something that actually costs more. The seller advertises prices that are much lower than those usually available on the market, and then finally reveals that the first product shown is no longer available for sale. a more expensive substitute may be offered in its place.
  • Price Lining - is the process in which marketers set different price ranges for different product groups. Customers have a wide choice of products and can choose the one that best suits their expectations. This strategy aims to convince consumers to buy the best quality products because the top product offers much more than just an economic product.

References

Author: Anita Byś